Unconscionable, but insurable: Federal Court allows claim under D&O insurance for unconscionable conduct penalties

The Federal Court has allowed the COO of Captain Cook College to claim his $400,000 civil penalties on his Directors & Officers insurance. The COO's unawareness of his conduct as "unconscionable conduct" was sufficient for the Court to permit him to claim his penalty against his insurance (Australian Competition and Consumer Commission v Productivity Partners Pty Ltd (trading as Captain Cook College) (in administration) (No 6) [2025] FCA 542). In other cases of deliberate and wilful conduct the court may order that an executive is barred from claiming insurance for his or her penalty.

The unconscionable conduct in question

The Federal Court has found that Captain Cook College and its COO, Blake Wills, had engaged in systemic unconscionable conduct and made false or misleading representations to students in connection with online diploma courses under the former VET FEE-HELP loan program.

In 2015, the College removed their consumer enrolment protections which would confirm that students were enrolling willingly, with full knowledge of the debt that they would incur under the VET FEE-HELP loan program, and that they were suitable to study without significant language, literacy or numeracy skills. The College would then claim and retain payments made by the Federal Government in respect of each student enrolled.

The removal of this enrolment process lead to thousands of students incurring debt for a course that they weren't engaging with, and costing millions of tax dollars.

Penalties sought by the ACCC

The ACCC sought penalties against Mr Wills of $500,000. Mr Wills is insured under a directors and officers insurance policy which includes indemnity in respect of “civil penalties which an Insured is legally obligated to pay including but not limited to civil fines or civil penalties imposed pursuant to ... the Competition and Consumer Act 2010 (Cth)”.

The ACCC sought orders from the Court that Mr Wills be barred from claiming this insurance for the penalty as it would "render the penalty devoid of any sting or burden" and take away from the deterrent effect of the penalty.

In Australian Building and Construction Commissioner v CFMEU [2017] and ACCC v BlueScope Steel Ltd (No 6) [2023], the Courts have held that there are implied powers, under section 546(1) of the Fair Work Act and section 76(1) of the Competition and Consumer Act respectively, to restrict individuals from accessing indemnity payments for civil penalties. These orders were made on the basis that they were necessary, to facilitate the purpose of a penalty. The ACCC submitted that there is a similar implied power under section 224 Australian Consumer Law.

In the BlueScope decision, the Court thought that it is inappropriate that the deterrent effect of a penalty be undermined by the security provided by D&O insurance against financial penalties. The requirement for individuals to personally pay the penalties of the Courts, looks to achieve that sting of effecting a deterrent.

However, the High Court considered in CFMEU that it is not who pays the penalty, but the amount of the penalty which acts as the deterrence.

When a personal payment order is inappropriate

In the Captain Cook College case the Court considered that regardless of whether such a power is implied in the CCA, it would be inappropriate, to order that Mr Wills be barred from making a claim under his directors and officers insurance policy for his civil penalty of $400,000.

The Court found that Mr Wills' unawareness that his conduct was "unconscionable conduct" meant that he did not "deliberately engage in unconscionable conduct and hence the conduct was not wilful". This is despite his role as a "key driver" of the changes to the enrolment process and that it was deliberate in the sense that he consciously and deliberately made such changes. Further, the Court considered that Mr Wills was not dishonest and he did not intend to cause harm, as contrasted with the conduct of the director in BlueScope where a personal payment order was made.

The Court spoke to one of the rationales of directors and officers insurance, being that “[i]n its absence, capable and talented individuals may be unwilling to join boards of directors, particularly as non-executive directors, or may become excessively risk averse on boards" (Bathurst T F, “Insurance Law – A view from the Bench” (2014) 25(3) Insurance Law Journal). The Court considered that such an insurance policy would be undermined if the courts "too readily made orders preventing someone from having the benefit of it", especially if the conduct is not considered wilful or dishonest.

The Court acknowledged the importance of deterrence but found that it had been sufficiently achieved through Mr Wills’ "significant period (13 months) of unemployment" and reputational damage, without needing to impose a personal payment order.

The Federal Court has ordered that Mr Wills be disqualified from managing corporations for a period of three years and he pay, or rather he make a claim from his D&O Insurer, the amount of $400,000 in penalties.

Key takeaways

The decision underscores the court’s careful approach in balancing deterrence with fairness, particularly where directors are not found to have acted with deliberate dishonestly or with wilful intent. With previous decisions barring the use of D&O insurance for civil penalties, this might be the exception, not the rule.

It also affirms the continuing relevance and protections provided by D&O.