1 00118601 Emerging themes 2019 A4 AW v31 combined - Page 23

D&O insurance can overcome these concerns.
It is therefore something which senior management
should expect their employers to provide. However,
care should be taken to ensure that cover is appropriate
and sufficient.
Cover for investigations is rapidly evolving and
increasingly provided under D&O policies. These
commonly now provide cover for legal representation
expenses incurred as a result of investigation. In the UK,
it is this type of cover which is most often called on
under D&O policies. However, the extent of cover varies
and it is important that organisations carefully consider
what they are buying. One particular problem we have
seen is that cover for regulatory investigations is
typically an “add on” and the policy language does
not adequately deal with regulatory investigations.
Other issues which could influence the availability
of D&O cover include:
•The conditions under which a company’s claim can
be accepted under a D&O insurance policy may be
strict and complex, and require prompt notification
of claims and/or circumstances which may give rise
to a claim.
•D&O cover is not always available for the early stages
of an investigation or for internal investigations which
may precede notification to a regulatory body.
•The policy might not respond to claims in
all jurisdictions.
•Which individuals are covered under the policy.
Since the introduction of SMCR, some D&O
policies have been extended to all employees
who may be placed under investigation, but this
can lead to greater risk of exhaustion of cover
(see following point).
Partner, London
•The policy limits may be inadequate and might
be exhausted if several individuals need legal
representation, this is a much greater risk now that
the FCA typically launches investigations against
several senior individuals where a suspected breach
by the firm has occurred.
•The policy may not pay out if the insurer argues
that the company failed in its duty to make a “fair
presentation” of the risks.
•The policy may not cover costs without the insurer’s
prior written consent, even in emergencies. So the
director may be forced to wait on the insurer’s
response before incurring fees in defending
•The policy may not cover settlements or compromises
unless agreed with the insurers in advance. So the
insurers could veto a settlement which the firm
or directors want.
•Fines cannot be indemnified in the UK.
In summary
All of these concerns need to be considered and
addressed when obtaining D&O insurance. However,
given the personal risk for directors and other senior
employees, particularly in the context of rapid changes
to the international regulatory landscape and greater
regulatory focus on individual conduct, financial services
firms should make D&O insurance a “must have”.
The best solution for directors is a combination of
an indemnity with a D&O policy that has been
carefully negotiated.
Partner, London


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