Who Is Paying News Corp. Legal Bills? — D&O Coverage Heavily Involved

August 1, 2011

With executives from News Corp., the media giant owned by Rupert Murdoch, and some of its subsidiaries heading for the exits, legal bills from the phone-hacking scandal rocking the company are no doubt stacking up. But depending on the companies’ directors and officers insurance coverage, News Corp. and its divisions aren’t likely to be responsible for paying the lawyers’ fees — at least for now.

The D&O insurance policies at companies like News Corp. cover the legal fees for executives and board members. But if schisms between company leaders arise, and insurers clash, things could fall apart. Independent board members could turn on internal members and former executives could blame each other for wrongdoing — all of which could throw the policies into disarray.

Big corporations such as News Corp., which has 51,000 employees and had $32.8 billion in revenue last year, usually buy at least $100 million in directors and officers insurance, legal experts said. In most cases, the coverage includes defending criminal charges for current and former executives.

Former News International division CEO Rebekah Brooks, former Dow Jones CEO Les Hinton and others who may end up defending allegations, in theory, will have their legal bills covered by insurance.

“There’s a reason white-collar attorneys make so much,” said University of Pennsylvania Law School Professor Tom Baker. “It’s because insurance pays them.”

Fights could arise about the point at which coverage kicks in, and whether a policy should cover the fees at all, said a UK-based executive with experience in directors and officers insurance. He requested anonymity because he was not authorized to discuss sensitive market matters publicly.

Investigations generally aren’t covered, and a “claiming event” usually is required to trigger coverage, such as an arrest or an indictment, the source said.

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