The review below was written by Chris Christian, CIC, RPLU of U.S. Risk. Check out her blog, Professional Liability Tidbits, for more D&O Symposium and professional liability takes.
Dave Williams, Vice President at Chubb & Son, moderated a lively exploration of the exposures and opportunities related to global business.
The session addressed both U.S. companies doing business abroad, and non-U.S. companies doing business in the U.S. and other locations. Several topics were discussed, including the trends in claims activity outside the U.S., the changing mindsets and cultural approaches to accountability, criminal versus civil actions in various jurisdictions, tax implications of multi-national placements, and the impact of regulators’ activities.
The developments and changes in global insurance needs just over the last five years boggles the mind. Lee Lindsay, Managing Director of Aon, indicated that the need to master global insurance issues was downplayed five or six years ago, and the advent of a holistic approach was seen as a departure from normal business that would soon fade away. However, that perspective has not proven to be accurate, and multinational business, regulations, public awareness, and consequent claims activities in Directors and Officers liability have been consistently growing. To demonstrate her point, Lee riffled through a stack of pages containing claims listings which was over an inch thick. These were all just from 2012!
Interestingly, one of the recurring questions on insureds’ minds is the very basic one of “Should we purchase foreign coverage?” The panel agreed that the answer is a definitive “Yes!”
Paul Schiavone, Global Chief Underwriting Officer for Special Lines from Zurich’s London office emphasized that there were over 300 regulatory claims against Ds & Os in just the UK alone, in the most recent time period surveyed. These included actions for violation of anti-bribery laws, securities violations and even contract-related actions. Additionally, the emphasis for exposures varies from jurisdiction to jurisdiction. The UK currently is seeing a lot of EPL claims; in Germany, there are Insured versus Insured issues. There are local indigenous securities claims in many countries, and in Brazil, regulatory actions are the flavor of the day.
As you can see just from the above information, the global environment is markedly different from the relatively predictable patterns that U.S. underwriters, brokers and insureds have come to know and love. This alone could be enough to motivate a good, hard look at taking securing coverage that is tailored to the specific environment in which the insured operates.
Paul also cautioned that a word frequently does not mean what we think it means when a policy is being read, applied, tested or challenged in another country. For example, the word “fines” is not defined in a D&O policy, and in Brazil, fines are not fines as we see them. The very lack of definition can give rise to disputes about what is covered and what is not if a U.S.-written policy comes into play with a Brazilian exposure.
Lee pointed out that in some countries, policies must be written in the country’s language, which creates all manner of challenges for brokers and underwriters that are not fluent in that language. Paul pointed out that there are issues with translation of policies from one language to another. Some words or concepts just do not translate correctly into another language, or there may be no similar concept in that language or culture. Without the benefit of the perspective of underwriters that are familiar with these jurisdictional quirks, the insured could easily end up with coverage falling far short of it expectations.
Thomas Sheffield, Senior Vice President of FINPRO Marsh New York office pointed out that securities transactions and subsequent claims coming from non-U.S. jurisdictions can differ radically from the actions taken domestically. Regulators can bring claims not just on their own behalf, but to recover funds for the aggrieved shareholders, not unlike the EEOC sometimes does for aggrieved employees.
All of this different activity is coming into the awareness of the Ds & Os serving the foreign subsidiaries of U.S. companies, and they are starting to require coverage be suitable to their needs, not just the parent’s needs. There can be concerns about limit erosion in these cases, as the subsidiary insureds fear there may be insufficient limits left for them, if the U.S. domiciled parent incurs a securities or other large claim. The parent may have similar concerns about limits it would prefer to have available being eroded by the unpredictable claim activity occurring in the foreign jurisdiction.
Nilam Sharma, a Partner at Ince & Co. LLP, and Head of Liability, notes that foreign clients doing business in the U.S. are becoming aware that litigation here is significantly more expensive than what they’re used to in their home jurisdictions. One of the main cost drivers that is unexpected for foreign clients is the costs of the discovery process. Insureds find themselves needing higher limits just to address the defense expenses associated with a claim.
Nilam also noted that in foreign jurisdictions, a unique and growing trend is inter-agency cooperation where regulators are sharing information. Historically, there have been confidentiality standards that prohibited the disclosure of some of this information. However, regulations have been passed that not only permit the disclosure but may require it.
After sharing many additional interesting observations and recommendations with the audience, the panel wrapped up with some pointed and helpful take-aways. They included the need to research the regulatory environment in the insured’s jurisdictions; recognize that all stakeholders in the process are increasingly adopting a global view; and that all the trends we are seeing now will continue to become bigger as time goes on.
In spite of the session being rather scary (as all good insurance seminars seem to be), it was engaging and informative.
The opinions expressed here are Chris Christian’s, and do not represent US Risk’s positions in any way. Nothing on this post is intended as legal advice. Post is for informational and entertainment purposes only. Please seek qualified legal counsel for a thorough understanding of any coverage matters.