In this guest-authored edition of the D&O Notebook, Woodruff Sawyer’s Jane Njavro discusses how to protect directors and officers globally when you’re an international company.
In most countries, D&O insurance is not compulsory. So why are an increasing number of companies choosing to add locally admitted insurance to their D&O programs instead of merely relying on a worldwide policy?
There are a few common reasons, including:
- A local director will not join the board of a company’s subsidiary without an in-country D&O insurance policy in place.
- There can be legal concerns regarding the company’s ability to provide indemnification or advancement of defense costs to individuals on the ground. In many countries, the law does not clearly allow a company to indemnify local Ds and Os. In some situations, a D or O may need to be proven innocent before the company can provide indemnification or defense costs.
- Complying with local tax regulations may be a priority. Some countries allow insurance placed in another country to respond (i.e., allow non-admitted insurance), but an additional tax applies. If the insurer cannot collect this tax, it becomes the company’s responsibility to self-file these taxes. Failure to file these taxes may result in a penalty or an audit. A local policy can avoid this awkwardness by providing a vehicle for local tax collection.
Foreign Subsidiaries and D&O Insurance
A common question I hear is this: My company has a number of foreign subsidiaries; how can I optimize my D&O insurance program for worldwide response and compliance?
Work with your trusted insurance broker to develop a global strategy that is right for your company’s risk profile and risk appetite. It is especially helpful to have developed a consistent approach to be used throughout the company well before various local Ds and Os start lobbying for special requests (that can be a less efficient solution ultimately from a coverage perspective).
Depending on your company and its needs, here are some options global companies can consider as a starting point:
- Rely on the worldwide coverage provided by master program. In any country that does not allow non-admitted coverage, the insurer will pay loss to the parent company. Most insurers use best efforts to get payment to individuals anywhere in the world, but if the country has strict restrictions, in-country payment may not be possible without a local insurance policy. Also, if the company is not legally able to provide indemnification or advance defense costs, then there is no insurance policy to step in.
- Augment local coverage with DIC drop down or tax schedule. If Lloyd’s of London is on your program, you can take advantage of their broad license to provide local admitted coverage in an efficient manner in many (but certainly not all) countries.
- Select a few key countries to purchase local policies. Some companies choose to purchase local policies only in countries that are highly regulated, where they have large assets or are of particular strategic importance. The process varies from country to country; this approach usually includes a Lloyd’s placement along with locally procured policies.
- Purchase local polices in every country where there is an employee on the ground. This is the most robust approach and most appropriate for large global companies. Collaboration with the primary carrier is a critical element of this approach. A handful of insurers can offer local placements in most countries. Or a separate “rest of world” tower may be purchased.
The approaches listed above are a solid starting point when it comes to protecting Ds and Os on a worldwide basis. The landscape, however, is fluid. As local Ds and Os are becoming more aware of issues that may arise from relying on a global program, insurers are building out their international capabilities and offering more solutions.