Hardie case shines light on D&O insurance
Successful civil penalty proceedings brought by the Australian Securities and Investments Commission (ASIC) against former James Hardie directors and executives are likely to put further pressure on an already hardening market for directors’ and officers’ (D&O) insurance.
NSW Supreme Court Justice Ian Gzell last week ruled former board members of construction materials company James Hardie breached the Corporations Act by making misleading statements about the firm’s ability to pay compensation to asbestos victims.
Central to the case was a 2001 press release that claimed a fully funded compensation fund would provide certainty to asbestos victims. Just two years later, it was revealed the fund faced a shortfall of more than $1 billion.
The 10 defendants include former Chairman Meredith Hellicar, who resigned her position on the boards of AMP, Amalgamated Holdings, Sydney Institute and Garvan Research Foundation following the decision.
The defendants must await a later hearing to learn what penalties will apply, while ASIC has hailed the decision as a landmark Australian decision on corporate governance.
Interrisk Australia General Counsel Justin Coss says the case could spur rising premiums for D&O insurance.
“It’s common knowledge D&O rates are hardening and coverage is narrowing,” he told insuranceNEWS.com.au. “This case is not going to do the market any favours and comes as another shot across the bows.
“These sorts of cases occur more regularly than the general public think. Directors can and do get found wanting, and you are looking at a large body of people in relation to asbestos claims.”
Although Mr Coss says he is not familiar with the finer details of the Hardie case, he believes James Hardie’s insurers may evade heavy exposure.
“Where there is fraud or dishonesty, D&O insurers won’t pay out,” he said. “We’ve already seen questions as to the veracity of some of the witnesses.”
NSW Supreme Court Justice Ian Gzell last week ruled former board members of construction materials company James Hardie breached the Corporations Act by making misleading statements about the firm’s ability to pay compensation to asbestos victims.
Central to the case was a 2001 press release that claimed a fully funded compensation fund would provide certainty to asbestos victims. Just two years later, it was revealed the fund faced a shortfall of more than $1 billion.
The 10 defendants include former Chairman Meredith Hellicar, who resigned her position on the boards of AMP, Amalgamated Holdings, Sydney Institute and Garvan Research Foundation following the decision.
The defendants must await a later hearing to learn what penalties will apply, while ASIC has hailed the decision as a landmark Australian decision on corporate governance.
Interrisk Australia General Counsel Justin Coss says the case could spur rising premiums for D&O insurance.
“It’s common knowledge D&O rates are hardening and coverage is narrowing,” he told insuranceNEWS.com.au. “This case is not going to do the market any favours and comes as another shot across the bows.
“These sorts of cases occur more regularly than the general public think. Directors can and do get found wanting, and you are looking at a large body of people in relation to asbestos claims.”
Although Mr Coss says he is not familiar with the finer details of the Hardie case, he believes James Hardie’s insurers may evade heavy exposure.
“Where there is fraud or dishonesty, D&O insurers won’t pay out,” he said. “We’ve already seen questions as to the veracity of some of the witnesses.”