A ruling last week by Australia’s top court has paved the way for failed phone company One.Tel to pursue CGU for $20 million.

Former One.Tel director John Greaves was insured under a directors’ and officers’ (D&O) liability policy with CGU. In September 2004, he was ordered to pay One.Tel compensation of $20 million.

Two months later Mr Greaves assigned his rights under the CGU policy to a bankruptcy trustee via a deed of arrangement that was valid for three years.

In October 2006 the trustee began proceedings against CGU in the Supreme Court of NSW, but the termination of the deed in November 2007 resulted in confusion as to whether the trustee still had the right to pursue an action under the policy.

Last week’s decision saw the High Court overturn a previous NSW ruling by finding that the termination of the deed assigning Mr Greaves’ rights under the CGU policy does not prevent the trustee from commencing an action on the policy for the $20 million.

But CGU spokesman Iwona Polski says CGU maintains alleged non-disclosure invalidated the D&O policy held by One.Tel and means CGU is not liable to pay the claim. These issues remain to be determined.

“In handing down its decision, the High Court did not consider the validity of the CGU policy or any claims under the policy,” she told insuranceNEWS.com.au. “This matter will now be returned to the NSW Supreme Court for a decision on the fundamental question concerning the existence of the CGU policy.

“CGU maintains that the CGU policy ceased to exist because of serious and significant issues of non-disclosure, and that therefore there was never a valid policy in place to meet any claims against the company directors.”