On 11 September 2026, the High Court handed down judgment in Liberty Managing Agency Ltd & Ors v Chedid & Salibi, an important decision providing welcome clarity for company directors and officers, insurance brokers and insolvency practitioners. The Court held that D&O insurers could not avoid a policy on the basis of alleged fraudulent misrepresentation or non-disclosure where the policy contains a non-avoidance clause requiring fraud to be "established" by a final decision of a court, tribunal or regulator (or by written admission). Nicola Maher and Jasmine Sutton discuss the judgment below.

Background

The claim concerned the second excess layer of Petrofac's D&O programme, written by a Lloyd's-led consortium and providing £45 million of cover in excess of £30 million. The two defendants, former officers of Petrofac, were insureds under the Policy and now face criminal charges under the Bribery Act 2010, with a trial due to commence in November 2026.

Defence costs had until now been met from the £30 million of underlying cover. With that cover on the point of exhaustion, funding was set to fall to the excess insurers.

By letters dated 10 August 2026, the insurers purported to avoid the Policy against the defendants alleging fraudulent misrepresentation and fraudulent non-disclosure. These allegations rely on matters that will be tested in the forthcoming criminal proceeding, but until then remain unproven.

Faced with imminent trial and no funding, the defendants secured an expedited hearing before Mr Justice Jacobs of three preliminary issues: (i) the operation of the Policy's non-avoidance clause; (ii) the public policy position; and (iii) the insurers' obligation to advance defence costs.

Clause 8.2

Central to the dispute was Clause 8.2, which provides that the insurer "shall not avoid" the Policy on the grounds of misrepresentation or non-disclosure save against an insured who has fraudulently misrepresented or failed to disclose material information, and then only "where such fraudulent conduct is established by a final decision of a court, tribunal or regulator or by a formal written admission of the Insured".

The insurers argued that these words added nothing of substance and merely reflected the ordinary position that an insurer would ultimately need to prove its case if challenged.

The insureds argued that the clause imposed a clear condition precedent to avoidance, which unless and until fraud was established by final adjudication or admission, the insurer simply had no right to avoid the policy.

The decision

Jacobs J accepted the insureds’ construction. Absent a formal admission, an insurer may avoid only once the alleged fraud has been established by a final decision of a court, tribunal or regulator. The judge rejected the insurers' argument that those words were mere surplusage, describing them as doing the "principal work" of the clause.

In reaching that conclusion, the Court drew a close analogy with the policy's conduct exclusion, which contained similar wording requiring dishonest conduct to be established by final adjudication before the exclusion could be relied upon. The judgment recognises that such clauses are a common feature of D&O insurance and are intended to prevent insurers from relying on unproven allegations to withdraw cover. 

Jacobs J held that this construction was consistent with commercial common sense. He observed that, absent Clause 8.2, "an insurer's unilateral assessment of the factual position would leave the insureds deprived of the costs of defending proceedings, perhaps (as here) at a critical time in the run-up to trial".

Significantly, the Court endorsed the concept that D&O policies are intended to bridge the gap between allegation and proof. As the judgment recognised, the parties had chosen to regulate how the policy would operate during that period of uncertainty, rather than allowing the insurer's unilateral view of the merits to determine whether cover remained available.

The insurers' public policy argument, that Clause 8.2 fell foul of the maxim that "fraud unravels all", also failed. The court held that the principle addresses the consequences of established fraud; it does not preclude parties from agreeing how their contract is to operate between allegation and proof. As Jacobs J confirmed: "In the absence of a clause such as Clause 8.2, it would be the insured who would suffer, in the period between uncertainty and resolution, from what might turn out to be a wrongful avoidance by the insurer." 

Conclusion

The judgment is a significant reaffirmation that allegations are not proof. Where a D&O policy requires fraud to be established by final adjudication or written admission, insurers cannot rely on unproven allegations alone to avoid cover or stop funding a defence.

For insurance brokers, this case is a reminder of the continuing importance of carefully drafted non-avoidance provisions and final adjudication wording. The certainty of ongoing defence funding, and the presence and precise formulation of a Clause 8.2-equivalent, remain important differentiators between policy wordings. Attention should also be paid to the position across each layer of cover, so that the protection at primary level is not diluted higher up.

For insolvency practitioners, the decision provides welcome confirmation that D&O insurance can continue to deliver meaningful protection, and crucial defence funding, even where serious allegations have been made but not yet proved. "Non-indemnifiable Loss" cover, engaged on the company's insolvency, cannot be circumvented by an unproven avoidance. The judgment supports the availability of defence funding for directors of insolvent companies facing investigation, disqualification, misfeasance or criminal proceedings, until such time as the insurer has established its case by a final decision of a court, tribunal or regulator (or by written admission).

The judgment will also be welcome news to Manchester City and its directors, past and present with the club facing a massive, highly complex and prolonged appeal process which is likely to drag on for years. In light of the judgment the parties concerned will be able appeal the 114 upheld Premier League rule breaches whilst maintaining top-tier legal representation. 

Should you have any questions or wish to discuss any insurance issues please contact Nicola Maher in our Insurance Disputes team.