Tips for Placing International D&O Policies

In my last post, I discussed an example of how surprisingly fragile directors and officers (D&O) liability insurance can be outside the United States. The recent ruling in New Zealand for the failed corporation Bridgecorp is just one more reason companies doing business around the globe need the right expertise when negotiating and purchasing D&O policies.

A common misconception can impede companies from adequately addressing international insurance concerns appropriately. The misconception is this: since the D&O policy purchased at corporate headquarters says that the policy is worldwide, it will in fact respond to claims brought and suits filed worldwide.

Unfortunately, this is not always the case. And with lawsuits against directors and officers on the rise worldwide, you simply can’t ignore the value of tailored D&O policies for subsidiaries located abroad.

Here are some of the more common claims we’re seeing being brought against the directors and officers of international subsidiaries:

• Tax violations
• Corruption charges
• Supervisory liability
• Consumer protection
• Product quality
• Environmental negligence

So if you have active corporate subsidiaries across the globe, what should your very first step be? Assess your risk in each relevant location. Then, understand the local legal requirements so you know how to create a D&O policy that will respond in those areas.

Let’s go over a few ways you can ensure you’re on the right path.

Assessing Your International D&O Risk

The first thing you want to do is understand your international D&O risk. To do this, consider:

1. Which countries to analyze. If you have just a handful of offices abroad, this is a straightforward exercise. But if you’re a large multi-national corporation, you may have quite a bit of work to do. Some companies will choose to analyze the risk of a subset of subsidiaries based on factors such as revenue, employee count and cultural norms for legal compliance.
2. Who really is a director or officer? Consider the roles and functions of the employees in question who are working abroad to determine if they could be held liable for the local branch or subsidiary and responsible for the acts of others there. For example, you may decide a three-person sales office in a particular region is a fairly low priority compared to more active subsidiaries with a large number of employees.
3. What legal battles have occurred or are currently happening. Dig deep into the possible D&O risks by exploring high-profile (or not-so-high-profile) legal battles facing corporations in the countries you’re doing business within. Your local outside counsel will be able to help you here. An insurance broker with international expertise should be able to help you as well.

Understanding Local Law to Create More Protective D&O Policies

Many D&O policies claim to respond worldwide. But merely having a clause that states this does not mean the policy is actually in compliance with local laws or that it will respond on behalf of the insureds in all instances. When looking to protect your directors and officers abroad, think about the following:

• Know the current insurance environment in the countries where you have subsidiaries.Do you need a local, in-country broker and/or insurer in order for the policy to respond in that country? Or is insurance placed in another jurisdiction (such as the U.S.) allowed to respond in that country? There is a surprising level of complexity when it comes to insurance regulatory regimes in different parts of the world.
• Examine the corporate protections available to your directors and officers worldwide.Make sure you understand the corporate protection available to you, such as rights to the advancement of legal fees and indemnification in international jurisdictions. For example, there are jurisdictions outside of the U.S. in which your legal fees can be reimbursed if the court rules in your favor, but you cannot be advanced legal fees.

Of course, you should expect to rely on your insurance broker to help you answer these questions. When looking for assistance from an insurance broker, choose a broker that can (a) offer you access to a core team of international specialists with international claims handling experience, and(b)provide access to a global broker network that your broker can manage and influence effectively.  There are two main ways to conduct international insurance:

1. Work with a brokerage that owns local offices worldwide.Keep in mind that in this scenario, the U.S. broker may not have ready knowledge of and experience with international D&O liability and insurance issues.  As such, your U.S. broker will usually defer to the broker in the local area they serve.  Thus, you’ll want to find a way to vet the local broker as well.
2. Work with an insurance brokerage that has a network of local brokers to place the insurance.If you go this route, make sure knowledge about international matters is in-house at U.S. headquarters. This ensures that if you have a question about what to do in Australia, for example, your broker can advise you and also direct and supervise all of your local placements.

If your business is international, your D&O risk is very real. So the question is: Are you prepared to respond to litigation against your directors and officers worldwide? If the answer is “no,” take those first steps to assessing your risk now.

The views expressed in this blog are solely those of the author. This blog should not be taken as insurance or legal advice for your particular situation. Questions? Comments? Concerns? Email: phuskins@woodruffsawyer.com.