2008 D&O2008 D&O SymposiumSymposium

International D&O: Global International D&O: Global ExposuresExposures

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DisclaimerDisclaimer

It is the responsibility of the insured to determine the legal requirements, if any, of a policy in any given jurisdiction. Nothing herein should be interpreted as, or relied upon, as rendering legal or tax advice on this or any other issue. Insureds are strongly encouraged to seek independent counsel. Coverage may not be available in all jurisdictions.

Any product information is only an example or summary. For actual terms and conditions, please refer to the policy in question.

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Introduction: The Changing Introduction: The Changing Nature of D&O LiabilityNature of D&O Liability

• Historically: N.American companies have purchased a global

policy protecting all D’s & O’s worldwide. Very few purchased locally-admitted policies. D&O was not a mandatory class of insurance

(until Romania recently). Little D&O claims activity outside the US, against

US-based companies This approach provided premium savings and

simplified administration.

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Introduction: The Changing Introduction: The Changing Nature of D&O LiabilityNature of D&O Liability

• Today, companies are having to re-examine the adequacy of this approach, due to: Recent legislative & regulatory

developments; Enhanced regulatory oversight and

scrutiny; Rising litigation outside the US.

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Today’s Panel FormatToday’s Panel Format

• Evolving Liability & Exposure Trends Outside the US

• “But I thought the policy was a global policy” – Coverage Implications

• Implications for Getting it Wrong

• Solutions: Structuring a Global D&O Program.

International D&O: International D&O: Global Exposures Global Exposures

• MODERATOR: Sarah Robson, Managing Director Marsh

• Suzan Friedberg, Assistant Vice President American International Underwriters

• Edward Smerdon, Partner Reynolds Porter Chamberlain, LLP

• Vincent Vandendael, Global Practice Leader Financial Lines

Zurich

• Carol Zacharias, Senior Vice PresidentACE USA

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Evolving Liability & Evolving Liability & Exposure Trends Outside Exposure Trends Outside

the USthe US

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Corporate governance demands growing: Corporate governance demands growing: Revised companies acts and related laws Revised companies acts and related laws increase directors’ duties and liabilities—increase directors’ duties and liabilities—

1990: Ireland1990: Ireland 1991, 2000: Israel1991, 2000: Israel 2001: Australia, Israel2001: Australia, Israel 2003: Italy; France; Spain; EU prospectus2003: Italy; France; Spain; EU prospectus directivedirective 2004: EU transparency directive; South Africa2004: EU transparency directive; South Africa 2005: Israel2005: Israel 2006: Mexico; China; United Kingdom2006: Mexico; China; United Kingdom 2007: Japan; S. Africa2007: Japan; S. Africa

Liability EnvironmentLiability Environment

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UK changes:UK changes: Codified director duties; Codified director duties; Derivative actions may be based on Derivative actions may be based on

negligence, not just fraud;negligence, not just fraud; Indemnification of defense costs permitted Indemnification of defense costs permitted

in derivative actions, subject to repayment in derivative actions, subject to repayment if not exonerated; if not exonerated;

Indemnification permitted in a third party Indemnification permitted in a third party action; action;

‘‘MD&A’ discussion must include future MD&A’ discussion must include future threats and trends.threats and trends.

Liability EnvironmentLiability Environment

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Spain changes:Spain changes: Codification of director duties; Codification of director duties;

Directors liable to company, creditors and Directors liable to company, creditors and shareholders for breach of duties; shareholders for breach of duties;

Joint and several liability of directors; Joint and several liability of directors; independent director requirements; independent director requirements;

Comply or explain.Comply or explain.

Liability EnvironmentLiability Environment

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Israel changes:Israel changes: Codified director duties; Codified director duties; Board must have 2 outside directors, one Board must have 2 outside directors, one

of which has accounting and financial of which has accounting and financial expertise; expertise;

Board must establish the number of inside Board must establish the number of inside directors that must have accounting and directors that must have accounting and financial expertise.financial expertise.

Liability EnvironmentLiability Environment

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China changes:China changes: Codified director duties; Codified director duties; Requires public companies to have Requires public companies to have

independent directors; independent directors; Permits regulators to remove directors Permits regulators to remove directors

who breach duties; who breach duties; Permits shareholder, company and Permits shareholder, company and

investor claims against directors for investor claims against directors for breach of duties; breach of duties;

Imposes joint and several liability on Imposes joint and several liability on directors for breaches.directors for breaches.

Liability EnvironmentLiability Environment

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Mexico changes:Mexico changes: Codified director duties; Codified director duties;

25% of board must be independent.25% of board must be independent.

Liability EnvironmentLiability Environment

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Court Access:Court Access: Many new company laws expressly permit Many new company laws expressly permit

derivative and shareholder actions;derivative and shareholder actions; ““Group actions”: Italy, England, Wales, Group actions”: Italy, England, Wales,

Sweden, Norway, Spain, Germany, Sweden, Norway, Spain, Germany, Portugal, UK, Netherlands (debating: Portugal, UK, Netherlands (debating: France, Denmark, Finland, Ireland); France, Denmark, Finland, Ireland);

Contingency fees: Italy (and advertising); Contingency fees: Italy (and advertising); “Success fees”: UK, Sweden;“Success fees”: UK, Sweden;

Germany: Share ownership 1% (10% ’05);Germany: Share ownership 1% (10% ’05); Defense funding companies.Defense funding companies.

Liability EnvironmentLiability Environment

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USA-based company D&O claims: USA-based company D&O claims: Bank, money laundering, RussiaBank, money laundering, Russia

Fortune 500, oil-for-food, United Kingdom Fortune 500, oil-for-food, United Kingdom

Investment bank, ItalyInvestment bank, Italy

Bank, ItalyBank, Italy

Investment bank, ItalyInvestment bank, Italy

Fund, South KoreaFund, South Korea

Fortune 500, employee information, FranceFortune 500, employee information, France

Tech company, contract payments, AsiaTech company, contract payments, Asia

Liability EnvironmentLiability Environment

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Non-USA claims: Non-USA claims:

BanksBanks Transportation companiesTransportation companies ManufacturersManufacturers PharmaceuticalsPharmaceuticals AirlinesAirlines InsurersInsurers Technology companiesTechnology companies Fund managersFund managers

Liability EnvironmentLiability Environment

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Trends:Trends:

Increasing duties and accountabilitiesIncreasing duties and accountabilities

Growing ease of access to courtsGrowing ease of access to courts

Beginnings of litigation, often Beginnings of litigation, often regulatoryregulatory

Liability EnvironmentLiability Environment

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““But I thought the policy But I thought the policy was a global policy” – was a global policy” – Coverage ImplicationsCoverage Implications

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Coverage ImplicationsCoverage Implications

• Why is this an issue now, this was not an issue 4-5 years ago?

• Doesn’t my US D&O policy provide all the necessary coverages on a Global basis?

• Isn’t this a problem for the Insurer? This isn’t the problem of the broker or client, or is it?

• Why can’t I have ONE US policy to take care of my Global needs – there are no claims outside the US anyway?

• What is an Admitted Country? What is a non-Admitted Country?

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Coverage Implications Coverage Implications (cont’d)(cont’d)

• Is my US “Global” Policy really Global? I have a Global Liberalization clause, Global Titles Clause, surely this protects me?

• Is D&O Cover compulsory?• How does the lack of international local policies

impact the payment of Claims? • Can Insurers pay directly into countries like –

Brazil, Russia, India, China?

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Take AwaysTake Aways

• Times have changed, ONE D&O policy is no longer sufficient for Global Companies - License and Tax

• Cover Implications Insured versus Insured Defense costs outside the limit Extended reporting period Investigation costs outside the limit Indemnification

• Question is not “If this must be done“ but “how “

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Implications for Getting it Implications for Getting it WrongWrong

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Implications for Getting it Implications for Getting it WrongWrong

• Taxes

• Fines & penalties

• Criminal sanctions

• Freezing of assets

• License revoked

+ Jail time in certain jurisdictions…

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Solutions: Structuring an Appropriate Global D&O

Insurance Program

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Key Questions Covered in Key Questions Covered in This SectionThis Section

• What are the needs and buying attitudes of the policyholders?

• What are the solutions available today, how do they work, and what are their relative benefits / drawbacks?

• Are there any myths about the Global D&O issue?

• Can we ignore the problem and hope it goes away?

• What are the future challenges for the D&O insurance industry?

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Establishing Need and Establishing Need and Buying attitude of Clients Buying attitude of Clients

ChecklistChecklist

• Where are the Policyholder’s subsidiaries?

• Are any of them in “restricted” territories?

• If so, what are the legal requirements there?

• What are the realistic exposures there?

• What is the Policyholder’s reason for buying the Policy - main board or global cover?

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Options IncludeOptions Include

1. Master Program with Local Policies

2. Free Standing policies in all territories

3. A combination of both

4. Cover the Parent for indemnifying the local subsidiary etc

5. Others

6. Do nothing? (after appropriate due diligence)

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Insured’s Insured’s Parent & Parent &

Subsidiaries Subsidiaries

Director Director

Local or EU Local or EU Passport Policy Passport Policy

Director Director

Insured’s Insured’s Local Local

Subsidiary Subsidiary

USA Insurer USA Insurer

D&O coverage for non-indemnified acts D&O coverage for non-indemnified acts (“Side A”)(“Side A”)Entity coverage for indemnified acts Entity coverage for indemnified acts (“Side B”)(“Side B”)Entity coverage for securities claims Entity coverage for securities claims (“Side C”)(“Side C”)Entity coverage for corporate indemnification Entity coverage for corporate indemnification paymentpayment

Corporate IndemnificationCorporate Indemnification

Corp

. In

dem

nifi

cati

on C

over

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Factors relevant to the Factors relevant to the OptionsOptions

1. Reliability / safety

2. Cost

3. Administrative burden

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ConclusionsConclusions

• There is no one-size-fits-all solution;• Look beyond the surface when evaluating

the exposure and treatment;• Must balance Compliance & Coverage;• Select insurer and broker carefully;• Further change is inevitable – insurance

solutions will continue to evolve.

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Questions?Questions?