Will a directors and officers liability program written by a U.S. carrier respond equally well to a claim arising from violations of laws and regulations in the United States, China, Brazil, Canada or Australia?
Even if the policy is written by a carrier with global operations, the answer isn’t always clear.
In fact, with corporate indemnification of directors and officers strictly prohibited in some countries, and others barring a foreign insurance policy from paying local claims, corporate risk managers can’t assume their U.S. D&O programs are up to the task of responding to the unique exposures they face doing business in the global economy.
Even language may be an issue, with certain countries requiring English policies to be translated into their native tongues.
Companies cannot assume that U.S. laws apply to their international offices, wholly owned subsidiaries or foreign factories.
In recent years, a number of trends have quickly transformed how international business is conducted. These trends have ramifications for insuring the personal assets of corporate directors and officers.
One factor changing the international business landscape–and subsequently the exposure of directors and officers–is a changing international regulatory environment. This is largely driven by new regulatory initiatives in the European Union countries, designed to provide greater consumer protection–with an emphasis on product liability, securities and antitrust.
Another factor is the potential consolidation of multinational stock exchanges, which could lead to additional corporations being listed on more than one exchange, and therefore subject to different listing requirements. These multiple listings can make companies vulnerable to private lawsuits in multiple jurisdictions.
Additionally, the formation of global standards and continued convergence in accountancy, corporate governance and legal compliance further evidence the changes to the regulation of global business.
Because accounting, governance and legal standards still differ from country to country, there are at least three types of directors who may be vulnerable to these new types of risks:
o Board members of U.S.-domiciled companies operating internationally.
o Americans serving on the boards of non-U.S.-based companies.
o Foreign-domiciled directors of the subsidiaries of multinational corporations.
It behooves directors and officers of multinational corporations–as well as the brokers that serve these clients–to take a close look at their D&O liability coverage to ensure there are no gaps in coverage which may make them vulnerable in litigation.
As an underwriter of D&O policies in more than 70 countries, we are aware of a wide range of coverage-specific complexities around the globe.
For example, in many civil code jurisdictions, such as Germany and France, coverage is provided for claims against directors and officers brought by the company, or on behalf of the company under insured-versus-insured wording.
Such coverage is excluded in U.S. policies (with certain exceptions, such as one for shareholder derivative claims brought on behalf of the company if the shareholder prosecutes the claim without the assistance of any insured. These are generally covered in the United States.)
Other differences between the way D&O coverage is written in the United States and overseas may include:
o Civil fines against directors can be insurable in a local country.
o Affirmative extradition cost coverage–which provides defense costs and public relations expenses associated with extradition proceedings–may be required in certain countries.
o Extended reporting periods must reflect local laws.
o In certain countries, civil fines are common against directors and officers, and may be insurable.
o Finally, indemnification laws vary depending on the local country and can be prohibited, limited, allowed, or in some cases simply unknown or unclear.
These are but a few examples of how foreign regulations dictate local coverage requirements.
When selecting a D&O policy to cover a multinational corporation and its foreign subsidiaries, it is important for risk managers and brokers to consider the following before binding coverage:
o Local regulations may require a D&O policy be issued by a locally licensed carrier.
o Local law may prohibit a local operation from having its parent company’s insurance policy pay claims.
o Indemnity payments by U.S.-based parent companies to individuals outside the United States may have adverse tax implications for the company.
o The local subsidiary may not be able to legally indemnify a director/officer, leaving that individual’s personal assets exposed.
o Local laws, regulations and customs may not effectively interpret or even consider the wording of a U.S.-issued policy.
o The international regulation landscape continues to evolve, leaving multinational companies exposed to noncontemplated liabilities.
U.S. D&O insurance experts are creating solutions to address these concerns, allowing corporate clients to buy global D&O programs that consist of locally admitted policies written in local languages and complying with specific local laws and regulations in countries worldwide.