One of our clients has recently been subjected to an ATO audit and he had insurance to cover legal and accounting fees.
The audit resulting in a finding by the ATO that the company had made careless, false and misleading statements in relation to its R&D claims, and disallowed them all.
The insurer then claimed that an exemption in the policy applied, which stated:
We do not Cover Costs arising from, in respect of or in relation to False or misleading statements in a material particular and where the reason for such statement can be attributed to deliberate evasion, recklessness or carelessness by or on behalf of the Insured.
We argued successfully that this only related to costs of the audit resulting from False or misleading responses made by the insured during the audit, not False or misleading statements made prior to the audit by the insured, and we had ensured that there was full and frank disclosure by the company during the audit process. If this were not the interpretation, this provision would knock out about 99% of all audits!
For insurance dispute resolution see Michael Paterson & Associates