Will a directors and officers liability program written by aU.S. carrier respond equally well to a claim arising fromviolations of laws and regulations in the United States, China,Brazil, Canada or Australia?

Even if the policy is written by a carrier with globaloperations, the answer isn't always clear.

In fact, with corporate indemnification of directors andofficers strictly prohibited in some countries, and others barringa foreign insurance policy from paying local claims, corporate riskmanagers can't assume their U.S. D&O programs are up to thetask of responding to the unique exposures they face doing businessin the global economy.

Even language may be an issue, with certain countries requiringEnglish policies to be translated into their native tongues.

Companies cannot assume that U.S. laws apply to theirinternational offices, wholly owned subsidiaries or foreignfactories.

In recent years, a number of trends have quickly transformed howinternational business is conducted. These trends haveramifications for insuring the personal assets of corporatedirectors and officers.

One factor changing the international business landscape–andsubsequently the exposure of directors and officers–is a changinginternational regulatory environment. This is largely driven by newregulatory initiatives in the European Union countries, designed toprovide greater consumer protection–with an emphasis on productliability, securities and antitrust.

Another factor is the potential consolidation of multinationalstock exchanges, which could lead to additional corporations beinglisted on more than one exchange, and therefore subject todifferent listing requirements. These multiple listings can makecompanies vulnerable to private lawsuits in multiplejurisdictions.

Additionally, the formation of global standards and continuedconvergence in accountancy, corporate governance and legalcompliance further evidence the changes to the regulation of globalbusiness.

Because accounting, governance and legal standards still differfrom country to country, there are at least three types ofdirectors who may be vulnerable to these new types of risks:

o Board members of U.S.-domiciled companies operatinginternationally.

o Americans serving on the boards of non-U.S.-basedcompanies.

o Foreign-domiciled directors of the subsidiaries ofmultinational corporations.

It behooves directors and officers of multinationalcorporations–as well as the brokers that serve these clients–totake a close look at their D&O liability coverage to ensurethere are no gaps in coverage which may make them vulnerable inlitigation.

As an underwriter of D&O policies in more than 70 countries,we are aware of a wide range of coverage-specific complexitiesaround the globe.

For example, in many civil code jurisdictions, such as Germanyand France, coverage is provided for claims against directors andofficers brought by the company, or on behalf of the company underinsured-versus-insured wording.

Such coverage is excluded in U.S. policies (with certainexceptions, such as one for shareholder derivative claims broughton behalf of the company if the shareholder prosecutes the claimwithout the assistance of any insured. These are generally coveredin the United States.)

Other differences between the way D&O coverage is written inthe United States and overseas may include:

o Civil fines against directors can be insurable in a localcountry.

o Affirmative extradition cost coverage–which provides defensecosts and public relations expenses associated with extraditionproceedings–may be required in certain countries.

o Extended reporting periods must reflect local laws.

o In certain countries, civil fines are common against directorsand officers, and may be insurable.

o Finally, indemnification laws vary depending on the localcountry and can be prohibited, limited, allowed, or in some casessimply unknown or unclear.

These are but a few examples of how foreign regulations dictatelocal coverage requirements.

When selecting a D&O policy to cover a multinationalcorporation and its foreign subsidiaries, it is important for riskmanagers and brokers to consider the following before bindingcoverage:

o Local regulations may require a D&O policy be issued by alocally licensed carrier.

o Local law may prohibit a local operation from having itsparent company's insurance policy pay claims.

o Indemnity payments by U.S.-based parent companies toindividuals outside the United States may have adverse taximplications for the company.

o The local subsidiary may not be able to legally indemnify adirector/officer, leaving that individual's personal assetsexposed.

o Local laws, regulations and customs may not effectivelyinterpret or even consider the wording of a U.S.-issued policy.

o The international regulation landscape continues to evolve,leaving multinational companies exposed to noncontemplatedliabilities.

U.S. D&O insurance experts are creating solutions to addressthese concerns, allowing corporate clients to buy global D&Oprograms that consist of locally admitted policies written in locallanguages and complying with specific local laws and regulations incountries worldwide.