Is anti-competitive behaviour insurable?

The August 2016 first-of-its-kind judgment against South African Airways in favour of Nationwide Airlines, for damages arising from conduct that was held to be an anti-competitive exclusionary act preventing Nationwide from entering into or expanding within the travel market, raises the interesting question whether the loss is insurable by the company and the directors.

SAA paid bonuses and gave free air tickets as incentives to travel agents to direct more flight bookings to it. The Competition Act enables a person to sue anyone found by the competition authorities to have engaged in prohibited anti-competitive conduct for damages.

The principle is that an insurer is not bound to indemnify deliberate unlawful behaviour. This includes indirect intent.

The company sued would claim under its public liability policy. Standard policy wordings exclude fines, penalties, punitive, exemplary or vindictive damages but not all damages arising from unlawful conduct. Policies often cover negligence for instance. Every case will have to be looked at on its facts to see whether there was intentional unlawful activity.

The competition authorities do not have to find a subjective intention.

In the competition setting, cartel behaviour is normally deliberate unlawful conduct. In the case like the SAA case the incentives may have been given in the bona fide belief after taking legal advice that they were lawful and insurers could be exposed if those are the facts. The competition authorities do not have to find a subjective intention so further evidence may be needed to consider the insurance claim.

Cover under a directors and officers policy is for unlawful acts. The Companies Act prohibits a company, and its insurers, from indemnifying a director for wilful misconduct or wilful breach of trust and for carrying on business with gross negligence or with intent to defraud or for any fraudulent purpose. Once again it will be a question of fact whether the director or prescribed officer was guilty of the kind of conduct that is excluded as a deliberately dishonest or fraudulent act under the policy.

Another question will be when the insured event occurs.

Under a liability policy the insured must be ‘legally liable to pay’ which could be when the final damages judgment of the high court comes out. The anticipated loss should of course be reported or disclosed earlier. Under the D&O policy it will usually be claims-made cover.

Is this a threat or any opportunity? Insurers should decide whether they want to create specific liability under their policies or to exclude liability under their policies to deal with claims relating to anti-competitive behaviour. Many liability policies already have exclusions for liability arising from breach of the Competition Act.