BOS International (Australia) Ltd v Babcock & Brown International Pty Ltd  NSWSC 1382 is the latest in a series of recent cases concerning the obligations of an insured to make public the existence and details of it insurance.
BOS International (Australia) Ltd (BOSI) was the manager of a facility on behalf of a large number of lenders who together lent Babcock & Brown International Pty Ltd (B&B) $3 billion. B&B was one of a number of companies in the Babcock & Brown Group.
Pursuant to clause 10.1 of the facility agreement (Agreement), B&B gave the following undertakings:
Each Obliger undertakes to each Indemnified Party to: …
- (h) (insurance) insure, and maintain insurance in relation to, its business and assets against those risks and to the extent as is usual for companies carrying on the same or substantially similar business. All such insurances will be with reputable independent insurers, companies or underwriters; …
- (i) (other information) provide the Facility Agent with any other information the Facility Agent or a Lender requests relating to the assets, operations, accounting methods or financial position of the Obligor or any other member of the Borrower Group promptly on being requested to do so; …
In accordance with the undertaking in clause 10.1(h), B&B held director and officer insurance policies, for which B&B (and not only its directors and officers) was an insured (D&O Policies). The primary layer of these policies contained the following Confidentiality Clause:
Confidentiality, The Insureds shall make all reasonable efforts not to disclose the existence of this policy to any person except to professional advisers or as required by law or court order and shall only state within the Company’s annual report that the Company has agreed, or otherwise, to pay a premium for this policy but shall not publish the nature of the liability covered by this policy, the name of the Insurer, the Limit of Liability or the Premium paid for this policy.
BOSI sought the following from B&B:
- Copies of all D&O Policies in respect of the directors and officers of B&B and the other members of the borrower group which would respond to a claim for any notification that may have been made at any time between 1 January 2006 and 1 January 2011; and
- The certificates of currency of all D&O Policies.
These documents were sought as part of its assessment of the financial position of B&B and the borrower group to ascertain whether these policies might respond to claims which some of those companies might bring against their directors and officers and to quantify the prospects of recovering the value of such claims.
B&B refused to provide copies of the D&O Policies.
The main issue for the court to determine was whether B&B was required, by virtue of 10.1(l) of the Agreement, to hand over the D&O Policies of which it held copies. In order to determine this issue, the court had to answer primarily the following questions:
- Was a D&O Policy which includes insurance cover for B&B an “asset” of B&B?
Rein J held (at ) that:
a policy of insurance which indemnifies a company in respect of loss which might be suffered by it (or in respect of a liability which may have been suffered by it) is an asset of that company within the ordinary meaning of the word, and it is not to be read down because the right to indemnity for which it provides is contingent upon an event occurring which may never occur.
- Did the D&O Policy relate to the “financial position” of B&B?
Rein J held (at ) that:
I do not think it can be doubted that if there was in existence a potential claim against Babcock, the existence of a policy of insurance covering that liability would affect Babcock’s financial position. If Babcock suffered loss by reason of breach of directors’ duties or was liable to a third party and had no insurance policy to compensate for that loss, its financial position would be materially worse than if it did. The insurance which clause 10.1(h) requires to be effected was insurance relating to Babcock’s “business” and “assets” so that reading clause 10.1(l) as requiring the policies to be produced, if sought, is consistent with that mandatory requirement.
- What was the impact of the Confidentiality Clause?
B&B argued that it was or ought to have been known to BOSI that any D&O Policies held by B&B would require B&B to maintain confidentiality in respect of the cover, breach of which might lead to loss of cover.
Rein J held (at ) that:
To be a fact or matter which can be “presumed” to be known to a party who has not been shown to have known of it, the fact or matter must be notorious “in the market in which the parties are operating”. No evidence was called as to that and I do not think that I can treat the existence of such a confidentiality clause as “notorious” and therefore one which can be “presumed” to be have known to both parties.
His Honour also found another problem with B&B’s argument was that the Confidentiality Clause excepts from prohibition obligations imposed by law. Counsel for B&B accepted that an obligation imposed by contract is one imposed by law.
The court ordered production of copies of policy documents and certificates of currency.