In this case, a major shareholder and board position exclusion in a D&O policy was found to have been enlivened where the relevant shareholder was a shareholder at the time of the claim, but not at the time of the alleged wrongful acts.  In so finding, the Court applied general principles of contractual interpretation and refused to strain to find ambiguity in the words of the exclusion clause where such ambiguity did not exist.  Company officers should carefully review the scope and wording of exclusion clauses (and in particular major shareholder exclusions) when negotiating D&O policies to ensure that coverage is not unexpectedly denied.

This case involved a D&O insurance policy (Policy) with AIG Australia Ltd (AIG) taken out by OZ Mineral Holdings Pty Ltd (OZ Minerals Holdings).  Previously, OZ Minerals Holdings had merged its mining business with the business of OZ Minerals Ltd (OZ Minerals) by way of a scheme of arrangement.  Claims for breaches of continuous disclosure obligations and misrepresentations in connection with the scheme were brought against OZ Minerals, which then brought contribution proceedings against OZ Minerals Holdings and its directors.  AIG denied liability under the Policy on the basis of a major shareholder and board position exclusion (Policy Exclusion) which provided that:

“The Insurer shall not be liable to make any payment under this policy in connection with any Claim brought by any past or present shareholder or stockholder who had or has:

(i) direct or indirect ownership of or control over 15% [or] more of the voting shares or rights of the Company or of any Subsidiary;

(ii) a representative individual or individuals holding a board position(s) with the Company”.

In finding that the Policy Exclusion applied despite the fact the 2 conditions were met only at the time of the claim being brought, but not at the time of the alleged wrongful acts (OZ Minerals did not become a shareholder of OZ Minerals Holdings, or have a representative on the board until after the merger), Hargrave J in the Supreme Court of Victoria:

  • found that in interpreting the words of the Policy Exclusion and resolving ambiguity, the Court should proceed in a “common sense and non-technical way” and give the Policy a “commercially sensible construction”.  Courts do not strain to find ambiguity in exclusion clauses and it is only appropriate to apply the contra proferentem rule where ambiguity remains after the application of the general principles of contractual interpretation;
  • preferred AIG’s construction that the use of the present tense words meant that the conditions for the Policy Exclusion applied to the time of both the alleged wrongful conduct and the time of the claim.  Such construction was grammatical, served an objectively reasonable purpose (ie protection from the risk of co-operation between a claimant and the company and misuse of confidential information to the claimant’s advantage) and accorded with the claims made structure of the Policy (which required both the alleged wrongful acts and the making of the claim within the policy period); and
  • found that while the minimum shareholding percentage of 15% in the Policy Exclusion was low and would not provide sufficient influence over OZ Minerals Holdings, this was not the point and the level of risk to be accepted by AIG was a matter of negotiation between the parties.