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Liable, but not covered

THE LACK of an insurance policy to protect corporate counsel from personal liability claims has prompted discussions between the Australian Corporate Lawyers Association (ACLA) and broker Marsh…

THE LACK of an insurance policy to protect corporate counsel from personal liability claims has prompted discussions between the Australian Corporate Lawyers Association (ACLA) and broker Marsh Australia.

Speaking at ACLA’s recent national conference in Melbourne, Justin Meyer, a senior executive in financial and professional risks at Marsh, said there had been “positive discussions” with ACLA on a tailored product for in-house counsel.

Further information would not be available until early next year, however and in the meantime there was very little available on the insurance market for individual in-house counsel. “Only through special negotiations by your company with global insurers would any protection be possible,” Meyer said.

The lack of products could largely be explained by the fact that it was not compulsory for in-house lawyers to have professional indemnity insurance. Meyer said there were international insurers with local offices that would provide cover for professional liabilities for in-house counsel.

But if lawyers were considering one of those options, it was important to test whether the policy covered the policy-holder for activities inherent in the actual profession of being a lawyer.

Within corporations, directors and officers liability insurance covered most executives. However, it was not suitable for those in legal roles as policies generally only covered activities of a “normal management nature” and specifically excluded professional activities, Meyer said.

Head of legal services at Bendigo Bank, Dion Gooderham, said personal liability was becoming a bigger issue for the in-house fraternity. Recent circumstances, such as the collapse of HIH and Enron, had placed greater focus on corporate governance and the role of in-house counsel.

“In the past we have ducked under the radar in terms of corporate scandals and actions, but I suspect that is changing,” he told delegates.

“Corporate governance is very much higher on the agenda. I am sure that some of you have benefited from that because you are being pushed up the foodchain … but there are also risks to face.”

What struck fear into the hearts of all legal practitioners was the possibility of being named personally as a defendant in an action, or having a claim made against them, Gooderham said. Although he could not source any Australian cases where an in-house counsel had been named as a defendant, it was a scenario that was occurring in the US.

One explanation for that was that the concept of vicarious liability was not as well entrenched in US employment law as it was here. Gooderham said there had been cases where not only the in-house lawyers had been sued but the external lawyers and auditors had also been named in the actions.

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