NU Online News Service, Nov. 24, 11:51 a.m. EST
The Dodd-Frank Act has reopened the door to U.S. regulatory action against some foreign entities after a recent Supreme Court decision had limited the reach of the U.S. legal system, according to experts.
The new reality gives directors and officers one more reason to ensure they have adequate professional liability coverage, the experts said during a webinar sponsored by the London-headquartered insurance broker Willis and the international law firm Proskauer, titled "Emerging Executive Risk Exposures for International Firms; Picking the Deep Pockets."
"Believe it or not, it has been nearly five decades, nearly half a century, since the class action has become the chosen tool through which plaintiffs seek recovery of claims violations for the federal securities laws," noted Richard L. Spinogatti, senior counsel in Proskauer's Litigation Department.
He went on to say that while the character and abilities of the attorneys who have built their careers on this system vary widely, they are all driven by the same thing: money. He added, "They are also very creative and adaptive."
Two Supreme Court decisions, Morrison v. National Australia Bank Ltd. in 2010 and Stoneridge Investment Partners LLC v. Scientific-Atlanta Inc. in 2008, made the deep pocket litigation more difficult, Mr. Spinogatti explained. However, the Dodd-Frank Wall Street Reform and Consumer Protection Act has impacted some provisions of the court's decisions.
The Stoneridge decision limits the amount of liability plaintiffs can claim to collect, primarily with respect to requests for legal fees from defendants, Mr. Sinogatti said.
Under the Morrison decision, Mr. Spinogatti explained, if a financial investment transaction occurred outside of the United States, then there was no right of private legal action against the entity in a U.S. Court.
However, Dodd-Frank now gives the Securities and Exchange Commission the authority to pursue directors and officers who it believes have violated securities laws.
Meanwhile, the legal community has not been sitting on its hands because of Stoneridge and Morrison either, Mr. Spinogatti explained. Attorneys in the United States have forged relationships with attorneys in foreign countries to pursue securities claims there.
He noted that the while not all nations allow class action litigation, attorneys are finding ways to bring claims, especially in nations where no judicial precedent exists, and they attempt to "push the envelope" in developing cases.
Insurers have not been idle, said Marc Eric Rosenthal, partner at Proskauer. They have developed policies that, though expensive, deal with D&O issues at the earliest stages of the litigation process, including the discovery stages.
He advised buyers of D&O coverage to review and negotiate coverages that will protect their interests overseas and offer sufficient limits outside of the United States.
Ann M. Longmore, executive vice president for Willis North America, emphasized the importance of having adequate, local D&O coverage, noting that while securities violations remain a civil issue in the United States, elsewhere it is a criminal violation.
Targets of such investigations can find themselves in handcuffs being whisked away to jail and discovering that "the fifth amendment doesn't apply" in other countries.
She emphasized the need for brokers to design policies locally. While a policy might be written in the United States and explicitly state it covers corporate officials on a global basis, locally the policy may not be recognized. Individual nations may require policies be written on an admitted basis, she said.
Locally written policies can also more quickly avoid currency regulations, because payments are not coming from overseas, and the local policies can answer local tax issues that a foreign policy would probably not deal with.
"The good news is that insurers have been dealing with insurance issues overseas for years," said Ms. Longmore. "You just have to understand what needs to be done."
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