Recalcitrant directors: rules of attribution in closely held companies

KR and others v Royal & Sun Alliance plc [2006] EWCA Civ 1454

Susan Watson and Chris Nicoll

In KR and others v Royal & Sun Alliance plc [2006] EWCA Civ 1454 the Court was called upon to determine whether the insurer under a liability policy could rely upon an exception for deliberate acts or omissions of the insured. The insured was a company which, having become insolvent, was proceeded against directly by third parties under the Third Party (Rights against Insurers) Act 1930. One of the persons responsible for the company’s liability was a director and principal shareholder of the insured. The central question was whether, in all the circumstances, the activities of that director could be attributed to the company for the purposes of the policy exclusion. As noted by Scott Baker LJ when delivering the judgment of the Court of Appeal, the outcome has ramifications for many other cases of a similar nature. The particular facts expose the conceptual difficulties that surround determining the liability of individuals who may act in several different capacities and have several different legal relationships with a company. Those difficulties may become apparent in marine insurance cases, principally hull insurance, and with respect to liability cover underwritten by P&I clubs.