- In Liberty Managing Agency Ltd & Others v Chedid & Salibi [2026] EWHC 2354 (Comm), Mr Justice Jacobs ordered second excess layer insurers to pay Mr Chedid and Mr Salibi’s defence costs just two weeks before the two insured former executives stand trial on Bribery Act charges which they deny.
- Mr Justice Jacobs unambiguously rejected an attempt by nine Lloyd’s syndicates to avoid the second excess layer of Petrofac’s D&O programme on the basis of alleged fraudulent misrepresentation and fraudulent non-disclosure at placement. The Commercial Court held that the “Non-Avoidance” clause in the D&O policy was clear: insurers cannot avoid the policy until the alleged fraudulent misrepresentation is established by a final decision of a court, tribunal or regulator, or is admitted in writing.
- Mr Justice Jacobs also unambiguously rejected insurers’ argument that it would be contrary for them to advance defence costs where a director is facing bribery allegations. He said [45]: “it is clear on current authority that there is no public policy reason which precludes an agreement to indemnify against the costs of meeting allegations of criminal wrongdoing. Indeed, given the widespread availability and use of D&O policies, which provide such defence costs cover, it would be very surprising if the position were otherwise”.
- Applying Coulson v News Group Newspapers, the Court also confirmed that defence costs incurred in answering unproven criminal allegations, including bribery, are insurable.
The Serious Fraud Office charged Mr Marwan Chedid, Petrofac’s former Chief Operating Officer, and Mr George Salibi, another former senior executive, with bribery offences in February 2024, alleging the payment of over US$30 million to agents to influence the award of UAE contracts worth some US$3.3 billion. Both have pleaded not guilty and their trial begins on 2 November 2026. Petrofac’s ultimate holding company entered administration in October 2025, so there was no prospect of the company indemnifying either officer.
Their defence costs had been funded through a primary layer of £15 million and a first excess layer of a further £15 million. With those limits close to exhaustion, funding was about to fall to the second excess layer insurers, whose layer provided cover of £45 million in excess of £30 million. On 10 August 2026, the second excess layer insurers purported to avoid as against the two individuals for fraudulent misrepresentation and non-disclosure at placement, relying materially on aspects of the prosecution case which were themselves yet to be proved. The defendants said they could not fund their own defence. Robin Knowles J ordered an expedited trial of three preliminary issues, heard on 9 September 2026, with judgment two days later.
Three provisions were key to the outcome.
- Clause 8.2 (Non-Avoidance) barred avoidance, or any other remedy, for misrepresentation or non-disclosure, except against an insured who had acted fraudulently before inception, “where such fraudulent conduct is established by a final decision of a court, tribunal or regulator or by a formal written admission”.
- Clause 5.1 (Conduct) excluded loss arising from deliberate dishonesty or improper personal gain, again only “where such behaviour or gain is established by” a final adjudication or a written admission.
- Clause 6.3 required covered defence costs to be paid as incurred within 21 days, and advancement of costs representing Non-indemnifiable Loss notwithstanding a live coverage dispute.
The construction of Clause 8.2 (Non-Avoidance)
Clause 8.2 provides that:
“The Insurer shall not avoid this policy… except with respect to:
- an Insured who has fraudulently misrepresented or fraudulently non-disclosed material information prior to the conclusion of this contract…
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 the closing words of Clause 8.2 were surplusage, restating no more than the ordinary position that an insurer who avoids must, if challenged, prove its case at trial, and that the clause imposed no requirement to obtain a decision before avoiding.
Jacobs J rejected both arguments. He accepted that clear words are needed before a party will be taken to have given up a common law remedy. However, he found that Clause 8.2 is clear: it prohibits avoidance until fraud is established.
Three features reinforced that conclusion:
- First, it could not sensibly be said that the “is established by” language allows an insurer to invoke the conduct exclusion before the relevant matters are established in separate proceedings relating to the allegations of fraud in the procurement of the policy.
- Second, final-adjudication wording is a common feature of D&O policies, and the Australian authorities (Wilkie v Gordian Runoff; Silbermann v CGU) establish that insurers cannot refuse to pay defence costs merely because fraud is alleged.
- Third, the defendants’ construction made better commercial sense. Adopting Callinan J’s observation in Wilkie, the Judge noted that on the insurers’ case they would become the “final arbiters of the extent of their obligations”, since insureds frequently lack the means to defend themselves unless put in funds. He added that withdrawing cover may increase the chance of the defence failing, which in turn assists the insurer in resisting payment under the conduct exclusion.
Public policy
The insurers also claimed that whatever Clause 8.2 means, the law will not enforce a term protecting an insured from the consequences of their own fraudulent statements. The Judge held that the principle did not apply to this situation. Pearson v Lord Mayor of Dublin and HIH v Chase Manhattan address the consequences of proven fraud, and Clause 8.2 leaves those untouched: if the insurers prove their case, the policy will be avoided ab initio and benefits received, including advanced defence costs, must be returned. However, what the parties had done was regulate the position between allegation and proof, or as the High Court of Australia put it in Wilkie, the “gap” between present uncertainty and ultimate resolution. No English decision holds that public policy forbids such an agreement.
Three further points supported the conclusion.
- There is no public policy objection to indemnifying the costs of meeting allegations of criminal wrongdoing, Coulson v News Group Newspapers [2012] EWCA Civ 1547 being binding authority and the SRA’s Minimum Terms requiring advancement where dishonesty is alleged.
- The courts uphold “pay now, sue later” clauses against unproven cross-claims in fraud (Skipskredittforeningen v Emperor Navigation; Deutsche Bank v Unitech), so the maxim that fraud unravels all must be applied with care where the fraud is as yet unproven.
- As for Onley v Catlin Syndicates [2018] FCAFC 119, the insurers’ best authority, that concerned a policy containing no equivalent of Clause 8.2, and Jacobs J did not accept the Federal Court of Australia’s obiter observations as representing English law.
Insurability of bribery defence costs
The Judge described this as straightforward. Coulson establishes that there is no public policy bar to indemnifying the costs of defending unproven criminal allegations, and there is no reason for a different rule where the allegation is one of bribery. The policy had in any event been carefully drafted to carve out what genuinely cannot be indemnified, with criminal fines and penalties being excluded from defined Loss, while expressly contemplating Bribery Act allegations within the definition of Wrongful Act.
Insurers’ reliance on section 232 of the Companies Act 2006 was rejected as irrelevant: the question was not the validity of an indemnity between the executives and Petrofac but the parties’ rights under a contract of insurance. Nor could insurability be judged by asking what the position would be on conviction, any more than on acquittal; it falls to be assessed as matters stand, which is one of unproven allegations.
The advancement obligation
The insurers accepted that, if they failed on the issues described above, that they would be obliged to advance defence costs in accordance with Clause 6.3. The Judge ordered the insurers to advance the defendants’ defence costs on an as-incurred basis within 21 days.
This is the first D&O English law coverage decision on this issue. It is surprising to see insurers adopt the position that D&O cover does not respond to one of the common situations that D&O policies are designed to cover. If the insurers’ arguments had succeeded, this would have undermined the basis on which D&O cover operates in the market in respect of criminal defence costs coverage – and Mr Justice Jacobs expressly recognised this in his judgment.
Policyholders should check their D&O wording to ensure that it would survive a similar challenge by insurers. The “established by final adjudication” wording is key, especially where it appears in the non-avoidance clause as well as the conduct exclusion (as in this case). The decision may not prevent insurers from raising coverage issues in parallel with claims brought against directors, but policy wordings should be checked to ensure that insurers remain obliged to advance defence costs notwithstanding ongoing assessments as to the responsiveness of coverage.
The case also shows that excess layer and tower structure wording and limits deserve scrutiny. Defence costs in a long SFO prosecution (and other complex proceedings) are capable of consuming multiple layers of cover before trial even begins.
Similar scrutiny and care should be taken with equivalent clauses in Professional Indemnity and other policies.
Whilst this is a commercially and legally sensible result for policyholders, it is also a first instance decision which is likely to be the subject of appeal. Interested parties should monitor further developments.
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