Corporate wrongdoing: tips for claiming on insurance

18 November 2015

Companies should ensure they engage with insurers at the right levels and check their excess policy when making a directors’ and officers’ insurance claim.

Corporate wrongdoing is once again back in the spotlight. Directors’ and officers’ (D&O) insurers are closely watching several cases, particularly the mounting number of class actions against Volkswagen, which recently admitted using engine management software to dupe diesel emissions tests

The incident has already sparked investor and consumer class action litigation in the US against the company and its directors. Volkswagen also faces a collective action brought in the Netherlands on behalf of European investors that purchased shares in the car giant via a Dutch bank or broker. 

Volkswagen’s woes are just the latest to hit the international corporate sector. Brazil has also been in the headlines, with corruption allegations against Brazilian oil group Petrobras and other companies that are likely to generate significant defence costs and damages, and create potentially contentious claims for D&O insurers. 

Meanwhile, in the UK Tesco’s D&O insurers will no doubt be dealing with the fall-out related to the retailer admitting to accounting irregularities in 2014. 

Primary and excess rates. 

Despite such potentially major claims making the headlines, the D&O market continues to be dominated by oversupply of capacity. This is keeping rates depressed, although primary insurers are looking to apply rate increases, where justified, on a risk-specific basis. 

Recently the D&O market has also seen a growing disconnect between primary and excess premium rates – while primary insurers deal with directors’ initial defence costs, these costs typically do not affect the excess markets. 

Tip for insurance buyers

When facing the prospect of notifying a D&O claim, it is very important to engage with insurers at the appropriate levels within the organisation and give careful consideration to the drafting of the notice and subsequent communication. 

D&O claims will often involve conflicts between directors sitting on the same board and revolve around serious allegations as to the appropriateness of their conduct. Notifying this to insurers in an appropriate manner is an important part of the claims process.

D&O insurance buyers should also review their excess policy forms to ensure that they are fully ‘follow form’ (mirror the primary policy language) and don’t introduce any additional terms.

The excess policy should also address how insurers will respond where there is a compromised claims settlement, or where the underlying insurers do not respond because of insolvency or policy language preventing aggregation of limits available to the insured under more than one policy. 

For further information, please contact Kurt Rothmann, Head of Management Liability on +44 (0)20 7528 4961

contact Kurt Rothmann
Head of D&O, JLT Specialty