Here and abroad
PLUS D&O Symposium eyes overseas exposures, U.S. subprime crisis
By Phil Zinkewicz
Directors and officers of U.S. corporations that operate overseas are facing ever-increasing exposures to lawsuits in countries such as China, France, Germany, Italy, Sweden and the U.K. These new exposures have raised questions about the possible need for locally admitted D&O policies, priority lists of D&O coverages and services, and the need for a better understanding of international exposures that could lead to reduced claims and improved claims trends outside the United States.
At the same time, the subprime mortgage meltdown in the United States has put directors and officers of corporations in harm’s way as legislators, regulators and shareholders attempt to determine the blame. Questions are being asked about the circumstances that have given rise to the subprime crisis and the resulting claims activity, about the legal and coverage issues, and about the risk factors relevant to claims management and claims resolution.
Both of these developments—global expansion and the subprime crisis—were addressed in February in two separate panels at the annual PLUS Directors & Officers Symposium in New York City.
At a panel moderated by Sarah Robson, managing director at Marsh & McLennan, panelists discussed the expanding liability exposures outside the United States that multinational corporations are facing; the recognition that worldwide coverages provided by U.S.-based insurers’ D&O policies may not be able to respond to local claims due to the statutory requirements of local admitted policies; and the dangers of potential civil fines, penalties and criminal proceedings facing an insured that holds a nonlicensed or nonadmitted policy.
Panelists were Susan Friedberg, assistant vice president, American International Underwriters; Vincent Vandendael, global practice leader of financial lines and global corporate CUO, financial lines, Zurich; Edward Smerdon, partner, Reynolds Porter Chamberlain, LLP; and Carol Zacharias, senior vice president, ACE USA.
The panelists agreed that there is a growing demand on the part of U.S. companies operating overseas for D&O products that meet the regulatory requirements of foreign countries. They said that claims in foreign countries against U.S. directors and officers have increased in both severity and frequency.
Most of the D&O claims activity overseas has been in the areas of accounting procedures, tax requirements and regulatory compliance, said the panelists. Another source of claims activity is the employment area, especially as more U.S. companies outsource their work forces, they added.
Even if a director is covered by a global U.S. liability policy, the panelists noted, additional local coverages may be needed to fully protect the director. They concluded that the safest course for U.S. companies is to deal with an insurer that has a history of international expertise.
Subprime crisis
The panel on the subprime mortgage crisis was moderated by John Rafferty, vice president, Hartford Financial Products. Panelists were Randall Bodner, partner, Ropes & Gray LLP; Bain Head, senior vice president, McGriff, Siebels & Williams; Evan Rosenberg, senior vice president, Chubb & Son; and Samuel H. Rudman, partner, Coughlin, Stoia, Geller, Rudman & Robbins.
Panelists were not specific about the magnitude of claims hitting D&O insurers as a result of the subprime crisis. They said the first wave of lawsuits has already hit, including a securities class action suit. They indicated that further class action lawsuits will be in the offing.
Rosenberg of Chubb said that it is time to stop referring to the “subprime mortgage crisis.” He explained: “What has evolved from the subprime mortgage crisis is a credit crisis. He said the crisis has already hit subprime lenders, rating agencies, mutual funds, money market funds and credit card trusts. “It will eventually affect retail companies,” he said. “Retail sales are already down because of the subprime mortgage situation.”
Bodner agreed with Rosenberg, saying that the U.S. is experiencing a credit crisis that goes beyond the subprime mortgage situation. “There is an alphabet soup of regulatory bodies that are already involved, including the DOJ, the FBI, the DOL and the SEC. In addition, various state attorneys general and secretaries of state are looking into the reasons for the crisis.”
Said Bodner: “We are not just dealing with civil litigation issues here. The credit crisis is a complicated world, and it’s going to get even more complicated. It is not just front page news in The Wall Street Journal, but also on Main Street and in local newspapers. And questions will be asked, such as whether all this is the result of simple market dislocations or were nefarious dealings going on.”
All of the panelists agreed that it is premature to predict how much the subprime mortgage situation or credit crisis will ultimately cost. Those immediately affected will include a great many companies that benefited from the availability of easy credit for home buyers: home builders, home improvement companies, home furnishings retailers, appliance manufacturers, construction materials companies, real estate brokers, surveying companies and title insurance companies.
The panelists warned, however, that this was only the tip of the iceberg. *