Globalization of directors and officers coverage

International business expansions deliver new exposures, new concerns

Globalization of directors and officers (D&O) liability products has opened up a whole new world of “what ifs” and “spiraling concerns” for the insurance industry. For starters, insurers, brokers and their clients are asking what is involved in the need to obtain locally admitted D&O policies in a variety of countries around the world? And what do insurers need to understand about international exposures in employment laws and other areas that could lead to claims and claim trends outside the U.S.?

“Carriers have for a very long time been able to issue admitted D&O policies in a number of jurisdictions. However, the landscape has changed dramatically, not just legally, but geographically,” said Mark Lamendola, vice president of Travelers Insurance. “Ten years ago when we would have conversations with brokers about this topic, we really were talking about Europe and Australia. Now it is truly global: Brazil, India, Pakistan, Japan, China, the list goes on.”

Going local
Lamendola said that the barriers to obtaining an admitted policy in other countries can be complicated for a variety of reasons.

“Carriers will spend a lot of time putting resources and money into how we execute the request from the brokers and the insureds to execute an admitted policy. For example, carriers filing a new D&O form in 50 states have to deal with amendatory endorsements in each state. Take that same process that lasts months and incorporate 50 different languages. It gives you an idea as to what we’re dealing with from a carrier side in the various countries around the world,” Lamendola said.

In addition to language barriers and the myriad of laws and regulations, other considerations need to be addressed.

“There are carriers out there that have their own network of affiliates and subsidiaries and are well-positioned to access locally admitted reinsured policies through their own network. Other carriers aren’t quite as sophisticated, or have quite the breadth geographically, and will need to access partners around the globe to help transact that business,” Lamendola said. “Cost is a factor. There is a cost to the carriers in setting up the network, issuing the policies, and having that transaction. If there’s reinsurance involved, a fronting fee will be there in some situations. Somebody will have to bear that cost, particularly if the insurance has to be local. Chances are the cost will be shared somewhere along the way between the carrier and the insured.”

New exposures
What are some of the exposures insurers and clients face as their business goes global? Jim Proferes, deputy D&O product manager, Chubb & Sons asked.

“When clients look into doing business in foreign countries they are just learning that there are real exposures out there,” said Rick Bortnick, Esq. of Cozen O’Conner. “U.S. law firms are beginning to move into foreign countries with the expectation that the new burgeoning markets are going to open up new opportunities for plaintiffs’ lawyers. One firm going into London professes to be looking at consumer and anti-trust issues, but they admit that they are going to look at securities law issues too.”

One obvious exposure facing clients involves the different types of employment laws around the world, Bortnick said. “In the U. S. you can be hired and fired for no reason, for any reason, for a reason. In foreign countries, that concept almost doesn’t exist. It did exist previously, but England and the various Commonwealth countries have gotten away from it and other countries never even adopted it,” Bortnick said.

Bortnick suggested that if a U.S. employer goes into a foreign country and buys a foreign subsidiary and then has to apply its own rate rules and procedures, and has to look now at three different things. The company has to exam local law and custom and employment arrangements, and has to look at its own policies to make sure that it’s following its own policies. A company will also have to look at U.S. employment laws because the U.S. employment laws may extend to extra-territorial employees of a subsidiary of the company.

“I guess a good analysis would be the age discrimination laws that we recognize here in the United States. Age discrimination is virtually unheard of in other countries of the world,” Bortnick said. “Another example is the individual that works in one country, and then goes to a second country, then a third country, and works his or her way through organizations around the world. When that individual is terminated, the termination/severance has to comply with the laws of every country that person touched.”

There are different rules on releases, on regulations, so insurers and client companies have to really pay attention because it’s not the same old exposures that we all know about, Bortnick said.

The Globalization of D&O coverage panel discussion was held during the PLUS International Conference in November 2006 in Chicago.

Topics Carriers USA Directors Officers