Three directors and officers of failed telco One.tel will have to fund their own defence after CGU’s refusal to immediately pay out on their directors' and officers' liability (D&O) policies was upheld on Friday by the NSW Court of Appeal. A 2-1 decision said CGU does not have to pay up front to fund the trio’s defence against an Australian Securities and Investments Commission (ASIC) lawsuit demanding $92 million.

One.tel directors Jodee Rich and John Greaves and CFO Mark Silberman must therefore fund their defence themselves. Their D&O policy has an exclusion against policyholders who were involved in “any wrongful act”. The appeal court upheld a Supreme Court judgement that CGU had a right to withhold the funds until after the ASIC case against the three has been decided.

The majority decision said CGU has a right to refuse payment “where the claim that caused those costs to be incurred by the insured was brought about by, contributed to or involved, inter alia, a dishonest act of omission on the part of the insured”.

Therefore, if ASIC’s case against the three men is successful, the insurer will not have to pay.