Tuesday, 12 June 2012
Directors must be cautious of inadequate cover under global programmes, warn ACE
Directors are increasingly asking more questions about their insurance arrangements under their company’s global insurance programmes, according to Ace Group.
Complex local laws make compliance a real challenge for D&O global programs, and directors risk exposing their personal assets if they don’t get it right, the insurer said in its latest white paper entitled Structuring Multinational Insurance Programmes: Cross-Border Challenges to Side A Directors & Officers Liability Insurance.
D&O insurance is split into three distinct forms of cover. Side A cover provides protection for a director when a company is unable, or not permitted to indemnify them. Side B will protect a company for the costs they may incur from indemnifying a director, while Side C covers a company’s exposure to securities litigation.
It is important to understand the three types of cover that make up a D&O policy, and to strike a balance between them, said Ace.
“The traditional, single ‘packaged’ protection of various standard D&O policies may be subject to challenge. It is only by separating the respective elements and understanding their interplay that a multinational company can protect itself and its people adequately,” it said.
Company directors are growing increasingly aware of compliance issues surrounding Side A cover in their D&O programs, said Nadia Cote, Ace’s financial lines manager for Continental Europe and Central and Eastern Europe.
“An individual director’s assets can come into play if sued by shareholders, but defence costs and lawyers’ fees that might be affordable for a corporation can be a big issue at a personal level,” said Ms Cote.
Directors’ personal assets may also be frozen, as happened in a recent bankruptcy case in Italy, she said.
A global D&O programme must take account of relevant local laws if the directors and officers are to be effectively insured, said Ace in its white paper. For an enterprise operating in multiple countries, this is no easy task and can create compliance risk, it said.
Although the challenges can initially appear daunting, says Ace in the report, they can be overcome with forethought, consultation and expertise. “With multinational insurance there are no simple solutions to complex problems, but there are concrete steps an enterprise can take to implement a materially compliant insurance programme,” the insurer said.
Companies and directors need to understand the compliance issues surrounding D&O global programs, or risk leaving directors personal assets exposed, said Ms Cote. For example, in certain countries, such as France, legislation prevents a company from indemnifying directors and will only allow a locally purchased policy to pay claims.
Master policies are also designed to cover the company’s financial interest, rather than a director’s personal assets, she said.
A locally purchased D&O policy may offer broader cover in countries like France, better reflecting local legislation and market practices, said Ms Cote.
ACE’s whitepaper can be found at http://www.acegroup.com/eu