Masterclass

The directors and officers of Canadian subsidiaries overseas face a host of liability exposures, and

recent headlines have put spotlights on fraud, regulatory compliance and environmental remediation issues. As exposures mount, so too has litigation against North American firms abroad, spurring costly legal expenses and a more personal risk for those at the helm: a threat to their own assets.

Pressure on offshore directors also comes from other fronts, as international regulators increase scrutiny on foreign companies and fewer jurisdictions accept non-admitted insurance programs. How can organizations best protect their international executives in this rapidly evolving environment? Greg Irvine, Zurich Canada’s national director of Management Solutions

Group, explains the limits of master directors and officers’ (D&O) programs and the rising value of locally admitted Side-A policies.

Q: Does my D&O policy cover claims brought in a foreign jurisdiction?

GreG IrvIne: It may not respond. Many countries don’t accept programs that are not locally admitted, which means that your worldwide D&O policy won’t be able to address those claims.

Only a few dozen countries worldwide allow non-admitted insurance, and murky non-admitted insurance rules mean that foreign executives don’t have coverage certainty. For instance, Chinese insurance regulations consider Canadian-based D&O policies illegal.

Brazil requires all insurance policies be purchased in country and, in addition, the government there can freeze an executive’s bank accounts when they are named in a lawsuit. Although a director or officer may seek reimbursement from a Canadian insurer, that act could actually be illegal, and both the insured and insurer could face penalties or incarceration. Obtaining a local policy would prevent such potential difficulties.

Q: Why do I need an admitted D&O insurance program?

GreG IrvIne: Overseas D&O claims are very real and require an appropriate insurance strategy.

Regulatory activity against companies and their executives has grown, and regulators from multiple countries often work together. This is most evident in bribery-related investigations and lawsuits. For example, changes to Canada’s Corruption of Foreign Public Officials Act (CFPOA), make it easier for authorities to enforce regulations—acts by Canadian citizens are considered as acts within the country even if they’re committed elsewhere, and thus fall under CFPOA penalties. One of the first major convictions under the new rules resulted in a $10.3-million fine for a Canadian energy company last year. The firm pled guilty to a bribery offence related to a $2-million fee it paid the wife of Chad’s ambassador to Canada during negotiations with the African nation over business interests there.

Market manipulation and other fraud investigations and suits—such as those involving insider trading or LIBOR—can also result in overseas regulatory claims against directors and officers. Executives can face personal liability from creditors for corporate obligations when their

Global reach, local riskProtect international directors and officers with locally admitted D&O paper

MasterCLASS

Greg Irvine | Zurich CanadaNational Director,

Management Solutions Group

Global reach, local risk

companies or local subsidiaries are bankrupt and unable to pay. If any of these actions are brought in jurisdictions where a master D&O policy is not permitted to respond, an in-country or local insurance policy provides an effective way to protect your executive’s personal assets.

Some local regulations won’t allow corporations to indemnify their officers. Under French corporate law, no clauses can limit or exclude the director’s liability to the corporation. If you’re an executive in Paris and you’re sued, your company won’t be able to pay your legal bills and your Canadian insurer won’t be able to pay the claim directly into France. However, even if certain global programs offer coverage—and allow a claim to be paid—there will be tax implications when the insurer wires those funds locally to France. Did your $10-million limit just become a $5-million one?

Having a locally admitted in-country policy addresses any tax implications. A local policy also enables direct payment of claims to executives in local jurisdictions. Insureds can rely on local claims teams well-versed in in-country laws and regulations regarding claims and insurance requirements. If your executive is in Asia, for example, you

also benefit from dealing in the local language, in the local time zone and with a local claims representative. Claims in these jurisdictions require quick decisions to ensure proper protection of each insured.

Q: Do I need to purchase admitted policies from my primary D&O carrier or are other options available?

GreG IrvIne: If your primary carrier doesn’t have an admitted policy in countries where your executives face exposure, you have options. You can choose to purchase a stand-alone policy in each country—however, this solution can be onerous and costly.

If, on the other hand, you want to remain with a primary carrier—and preserve a long-standing relationship—you can purchase excess insurance that carries international policy placement abilities. Zurich offers an excess Side-A policy that includes drop-down features that enable the policy to function as a typical excess policy on a global D&O program, as well as act as primary for claims brought in other countries where primary and other underlying carriers cannot respond. For that scenario, having Zurich as an excess carrier is a good alternative.

Q: What should I look for in a D&O insurance provider?

GreG IrvIne: Consider whether your insurer maintains a fully compliant and admitted insurance program in countries where your executives work and face exposure. Does the insurer understand foreign admitted requirements? And can they address the impact of international corporate indemnification laws on your executive’s ability to be protected in case of a claim?

To address the increase in international exposure, you need global underwriting and claims professionals who are more than generalists. Zurich partners with over 120 global law firms to keep track of local legislation. You also need professionals around the world who are dedicated to D&O and E&O. Zurich has a proven track record of providing expertise in international insurance programs. These are just some of the areas where Zurich can make a difference.

Security on all SideSProtecting executives abroad involves more than locally admitted paper. Key elements of Zurich’s coverage stems from its intellectual capital and broad global reach:

n Our Multinational Insurance Application (MIA) leverages legal expertise from over 120 global law firms, ensuring that underwriters and claims specialists stay abreast of evolving insurance and tax regulations worldwide

n Zurich can issue local paper in over 170 countriesn The company has over 70 claims experts around the

world dedicated to D&O and E&On The Zurich Executive Universal Select (ZEUS) Side-A

policy is filed in 30 countries