D&O Suits Growing In Europe, Report Says

The number of claims against directors and officers is rising across Europe, as cross-border investment and the influence of multinationals spreads, a British law firm is reporting.

London-based CMS Cameron McKenna said in its Law-Now online report, "Not only does there appear to be greater scope for liability of D&O in many European jurisdictions, but also a greater willingness to sue."

The demand for D&O insurance will inevitably grow across Europe over the coming decade. It currently appears that this demand will be matched by the appetite to supply of UK-based (re-)insurers, the firm said.

It noted that there is widespread concern among underwriters about how to manage the uncertainties of providing D&O cover, particularly in Central & Eastern Europe.

The firm advised that careful underwriters have two ways of containing this risk:

o The first, it said, is through the use of tight wordings, properly tailored to local legal requirements. Cameron McKenna noted there are some particularly difficult areas--for example, in terms of the interpretation by local courts of policy wordings and the applicability of certain standard clauses.

o It said the second is through the underwriting process, noting that there are difficulties for the underwriter--for example, what is the quality of the information being disclosed? What is the local business culture? Is there any danger of government intervention?

The article by Stephen Tester, a partner in the firm, and Will Sefton, a senior associate, said the exposure of directors to increased liabilities associated with listings, particularly on U.S. Exchanges, has led to increased demand for annual D&O and "long-tail" prospectus liability insurance products.

According to their analysis, while the scope for potential liability has grown in most jurisdictions, the trend toward increased exposure has often been the result of a greater willingness to sue rather than a change in law.

Most jurisdictions, it was noted, have long imposed on directors a duty to act with due skill and care, and in the best interests of the company, or required directors to have proper regard for the interests of creditors when faced with insolvency.

What has changed is that legal rights are now being pursued and enforced more often and more vigorously than ever before, they said, and they forecasted that the demand for D&O insurance will grow across Europe in the coming decade, particularly in those jurisdictions with a strong regulatory environment.

The full report can be viewed online at http://www.law-now.com/law-now/2007/currenttrendsacrossEurope.htm