The recent Court of Appeal case of KR and others v Royal and Sun Alliance provides further guidance on how the acts of a director can be attributed to a company in the context of determining whether a deliberate acts exclusion in an insurance policy should apply to the entity. This is relevant to a D&O policy’s securities entity coverage.

The background to the claim concerns group litigation brought against a residential children’s home, Bryn Alyn, by a number of its former residents alleging widespread abuse by members of Bryn Alyn’s staff. The claims were successful and an action was brought against Bryn Alyn’s insurers under the Third Party (Rights against Insurers) Act 1930.

Bryn Alyn’s insurance policy contained an exclusion for “injury or damage which results from a deliberate act or omission of the insured”. One issue the Court of Appeal was asked to consider was the extent to which acts of abuse perpetrated by Bryn Allen’s majority shareholder and CEO, John Allen, could be attributed to Bryn Alyn (the insured), thereby falling within the terms of the exclusion.

In holding that John Allen’s acts should be attributed to Bryn Allen, the Court of Appeal carried out a comprehensive review on the law of attribution. From this we can discern the following:

  • the fact the individual’s acts were not committed strictly in the course of the company’s business did not prevent them from being attributed to the company. The key issue is whether the perpetrator of the act was the directing mind and will of the company
  • in order to identify who is a company’s directing mind and will it is necessary to consider which individuals have control and management of the specific matters in issue rather than control and management of the company generally
  • as a result of the above approach, the determination of which individual constitutes the directing mind and will of the company is highly fact sensitive and will vary in different instances.

This case potentially makes it easier for insurers to attribute an individual’s knowledge to a company.