« Directors & Officers Liability » insurance: an AIG clause favourable to policyholders

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Publié le 02/09/2025 par Jérôme Goy

INSURANCE LAW

In a final decision handed down on 16 January 2025, the Vice-President of the Paris Court of Justice upheld the application, in favour of insured executives, of a common contractual clause relating to the reimbursement of their legal defence costs.

THE FACTS
A company takes out « Directors & Officers Liability » insurance with an insurer. The debate continues as to whether it is possible to insure criminal and administrative fines (1), but there is nothing to prevent the insurer from covering defence costs in criminal and civil proceedings. The company had covered the insured party’s legal fees in connection with his criminal defence. The director of the insured company had been accused of misappropriation of company assets, for which he was acquitted at first instance, then prosecuted for mismanagement. He was again acquitted, with the insurer paying compensation in excess of €500,000.

THE DECISION
The insurer is seeking reimbursement of the sums paid for the insured’s defence, as well as reimbursement of the compensation received by the insured under Article 700. If the judgment (2) acquits the director, it also orders the plaintiffs to pay him the sum of €100,000, which the insurer is seeking reimbursement of. The insurer first invokes legal subrogation, arguing that since the insured received the insurance compensation, the insurer is subrogated, up to the amount of that compensation, to the rights and actions of the insured (3). Implicitly, the insurer considers that the creditor has a liability claim against the company and can therefore subrogate its rights. It also argues that the insured party has been unjustly enriched and that the undue payment should be recovered. The insurer does not claim reimbursement of defence costs, but rather the return of the sum paid to the director in this respect, a sum corresponding to costs that he did not pay personally and which, according to the insurer, should therefore not be payable to him under Article 700. The insured argues that he did not have a claim against the liable party, as the sum paid to him under Article 700 was not a liability claim against the company. He invokes clause 8 of the insurance contract: “The defence costs and related expenses paid by the insurer shall not be reimbursed by the insured party insofar as the claim based on the alleged fault likely to be covered under this contract gives rise to: either a final court decision of non-liability; the abandonment of proceedings against the insured; or an amicable settlement accepted by the insurer.” This clause appears in a fairly large number of civil liability insurance contracts for corporate officers.

THE COMMENTARY
The court refers to clause 1.2 of the contract, which provides for ‘the reimbursement of the underwriting company [and the insured parties] for defence costs’ in the event that its civil liability is incurred in the performance of its duties as a director. It ruled out subrogation in favour of the insurer, as clause 8 does not provide for the reimbursement of defence costs in the event of a final decision of non-liability. The insurer was therefore not entitled to subrogation of the rights of the insured, and the latter ‘did not unjustifiably enrich himself to the detriment of others within the meaning of Article 1303 of the Civil Code’. It is therefore not possible to subrogate the rights of the insured if the latter does not have any (i.e. a liability claim).