For risk managers whose operations expand into Europe, culturaldivides and differing levels of exposures aren't the only issues ontheir minds in the wake of a court ruling that may drive changes inthe way they place insurance coverage.

A European Court of Justice ruling in June 2001–Kvaerner v.Staatssecretaris, referred to as “Kvaerner”–barred corporationsfrom writing all of their European insurance coverage from anyEuropean Union country with the lowest taxes simply as a means ofavoiding higher taxes in other EU countries where the company inquestion had significant exposures.

The court ruled that “within the European Union, insurancepremium tax (IPT) must be paid in the country where the risk islocated, even if the policyholder is a group (holding) company inanother country,” according to an analysis from Tax NotesInternational, a newsletter published by Tax Analysts, a nonprofitpublisher in Falls Church, Va.

“International groups should make note of that decision, as itcould lay a trap for the unwary that take out worldwide insurancepolicies,” the newsletter said.

Following that ruling, tax authorities in individual countriesare becoming more savvy about global companies' efforts to minimizetheir insurance tax dollars around the world, brokers said.

That, combined with the spirit of Sarbanes-Oxley seepingsteadily into the mindset of regulators and legislative bodiesaround the world, makes “going local” increasingly imperative,experts warn.

“Right now, probably the biggest issue out there is the use ofglobal nonadmitted coverages,” said Rich Yarborough, vice presidentof international risk at The Hylant Group, a Cleveland, Ohio-basedinsurance brokerage, referring to coverages ranging from propertyto general liability to directors and officers insurance.

(See related article on page 30 for further discussion of globalD&O insurance.)

“Historically, a lot of that has been written from the UnitedStates,” but all of that is changing now, Mr. Yarborough said.

“You have to be very careful not to create a tax situation whereyou could be fined or [where a] local management creates legalproblems because you're perceived to be evading taxes,” hesaid.

Meanwhile, “a consistent question that is being raised thesedays is compliance,” according to Jim Gervang, vice president andcorporate director of international risk services at Redwood City,Calif.-based ABD Insurance and Financial Services–a member of theWorldwide Broker Network, a grouping of 53 brokerage firms in closeto 50 countries.

“Increasingly, U.S. companies want to understand what coveragethey need to have by law in every country they're entering,” saidMr. Gervang.

He noted, for example, a common thread in a lot countries–”whereif you own or long-term lease an auto, your U.S. insurance policywon't cover that.”

“So, now you see risk managers asking, 'What is the typicalcoverage that a company operating in this country buys? What arethe limits?'”

“In some countries, you'll see companies buying an employersliability policy because employees have a right to sue you there;in other countries that exposure may already be covered by aworkers' compensation policy,” he said.

(Another network of international brokers is also available tohelp U.S.-based risk managers placing foreign exposures–Columbus,Ohio-based Assurex Global.)

Daniel P. Walsh, senior vice president and internationalpractice leader at Wachovia Insurance Services in New York, saidconversations with risk managers often move beyond discussions oflegal requirements. “It's more and more prevalent for me to have aconversation about what is legally required in a countryinsurance-wise–what I call a 'bare-bones approach'–versus astandard local coverage,” he said.

For example, he noted that while general liability coverage israrely required from a statutory standpoint locally, “we'llrecommend that our clients buy it so they maintain a good localstandard.”

Doug Fay, president of Globex International Group, said somecountries are now requiring local coverages in areas where theypreviously didn't, such as D&O. “Nine months ago, thePhilippines said, 'If you have to do any D&O, you have to do itwith local coverage,'” he noted.

D&O coverage overseas is rapidly becoming a major localissue, Mr. Gervang agreed. “Firms should be considering local,admitted D&O policies in certain countries,” he said. “Local,admitted policies are arranged for general liability cover andoften employers liability cover outside of the United States aspart of global insurance programs.”

However, he noted that problems might arise managing other formsof liability. “In Brazil, for example, a director can potentiallyhave his or her assets frozen if sued and there is not a local,admitted D&O policy in place,” Mr. Gervang said.

Directors and officers in countries such as France and Italyhave greater exposures based on the local systems and laws thanthose other countries, and these local managers often raiseconcerns about being covered under only a U.S.-based policy, headded.

“This issue has been raised over the years by a number of ourWBN members and some our clients' international subsidiarymanagement, but the concern regarding this exposure and situationhas been steadily increasing in recent years,” Mr. Gervangreported. “Insurance carriers such as Chubb and AIG are beginningto address this issue in their product offerings as well.”

Another major network of international brokers is also availableto help U.S.-based risk managers placing foreignexposures–Columbus, Ohio-based Assurex Global.