D&O Coverage Not The Same Everywhere

Directors and officers liability coverage is not uniform throughout the world, and insurance purchased for a multinational firm in the United States does not necessarily extend to other countries, brokerage executives said.

Their comments were delivered during a Marsh brokerage seminar on "The New Reality of Risk."

Nick Foord-Kelcey, a managing director of Marsh and head of D&O practice in Europe, and Stuart Hill, an attorney with the law firm Lovells LLP in London, said not all nations recognize nonadmitted D&O coverage and a close reading and understanding of local requirements is necessary to make sure executives have the right coverage where they work.

In some countries, said Mr. Foord-Kelcey, there are also tax payments required on premiums and subsidiaries may have to figure what proportion of premium paid on a policy applies.

The coverage issue does have an exception in the European Union countries, he added, where purchase of a D&O policy in London does extend itself to other members of the Union.

Mr. Foord-Kelcey and Mr. Hill underscored the importance of D&O coverage overseas, noting that regulations and changes in the perception of the legal requirements of corporate executives to both their employees and shareholders are making litigation more popular, though still not at the level seen in the United States.

However, the definition of D&O responsibility is expanding and evolving, noted Mr. Hill.

He pointed to the British definition of responsibilities of corporate officers. For years, those definitions were based on common law and were codified in 2006. Under more recent definitions, he said the law appears to cover corporate responsibility for the impact of the company's practices on people and the environment.

He said corporations may now be held as "catalysts for social and environmental change," and that may also open the doors to increased litigation.

Diana Diffendarfer-Clark, senior vice president, Marsh's multinational practice, advised companies "to prepare yourself for conflicting information on the surface regulatory analysis," noting that the information they get from an insurer may be different from the country's regulator.

Companies need to seek professional advice and examine deeply individual nations' regulatory environment, understand the rules, and even work up hypothetical loss scenarios to determine how the coverage will be played out.

Eugene "Tripp" Sheehan, Marsh's national D&O practice leader, who moderated the discussion, said U.S. companies often assumed in the past that the purchase of a D&O policy covered claims made around the world, but that is no longer the case.

This new reality does not confine itself to D&O but also extends to other coverage including errors and omissions, fiduciary liability, employment practices liability and fidelity, Mr. Sheehan said.

A replay of the session is available online at www.marsh.com.