There are lots of emerging liability risks that may be keeping corporate directors and officers awake at night, which is why their D&O insurance protection is rising up their list of concerns.

“The worry of whether or not a D&O policy, or a company indemnification, will be able to respond to claims in all jurisdictions has risen up the agenda,” according to a survey conducted in the UK by Willis Towers Watson and the international law firm Allen & Overy.

“With directors and officers facing so much personal exposure – to the extent that it can be difficult for them to keep track of the laws that apply to them – it is not a surprise that D&O policy coverage and related company indemnities are becoming more of a focus of attention…,” said the survey report, titled “Directors’ liability D&O: The changing face of personal exposure.”

Indeed, 59 percent of survey participants ranked these policy worries as a top five concern.

“It was of particular concern to those working in public companies (60 percent) rather than private (41 percent)…,” the survey report said.

Unsurprisingly, the report added, it was a greater concern for those companies doing the majority of their business outside the UK (where 69 percent considered it a significant D&O area, versus just 35 percent in businesses operating predominantly in the UK).

Respondents identified their most significant policy coverage issues to be “clear and easy-to-follow policy terms,” which suggests that more needs to be done by the insurance industry to deliver this result, the report said.

Drilling down into the types of coverage concerns, the survey revealed that respondents are concerned “about coverage for the cost of advice incurred at the early stages of an investigation, prior to any main hearing….”

Insurers generally do not normally cover the early stage of an investigation, “because they regard their coverage as being for claims and formal investigations,” the survey report said.

“It also can prove tricky to distinguish between the costs of defending the entity and the costs of defending the individual before formal proceedings have been issued…,” the report said, noting that insurers are not interested in covering company costs under a D&O policy.

However, the report added, the costs of legal advice for individuals at the start of investigations can be substantial. With regulatory and enforcement so heavily focused on senior management, “this is a growing area of expense, particularly as matters become more and more complex and increasingly international.”

While new policies are now available that cover the early stages of investigations, “the limits of that cover need to be specific and delineated.”

Taking Control

Another major concern found in the survey relates to the issue of how claims will be controlled and settled, which has been listed as a top five concern in the last three surveys, conducted by Allen & Overy and Willis Towers Watson. (This is the fourth D&O survey, initiated by the two companies in 2011).

“This can be a vital issue in particular for directors or officers who find themselves in a tight spot and want to have as much control over their defense as possible,” the report explained.

If insurers are fully in control, then their motivation and desired outcome for settling a claim may be different from the director and interests may not be aligned, it added.

“The degree to which an insurer can run a case remains an issue, and different policies are drafted in their own unique ways,” the report said. “While it is usual for the insurer to require consent for legal fees, and before agreement of a settlement, beyond that, there is room for negotiation and policy terms vary.”

Other findings of the survey include:

• Regulatory and other investigations and inquiries continue to top the list of director liability concerns, but are now followed by cyber attack and data loss as major new concerns.
• More than a quarter (27 percent) of the respondents have experienced a claim or investigation involving a director of their company, but among the public company respondents, the figure is 39 percent, while 10 percent of private companies have encountered such claims.
• Nearly a third (31 percent) of the respondents experienced a cyber-attack or loss of data significant enough to have been brought to the attention of the board in the last 12 months. This was the first time these issues figured prominently as director liability concerns.
• There is an increased perception of the potential for conflicts of interest between and among directors and the company, especially of public companies in the financial services sector.
• Only 56 percent of survey respondents were aware of the UK government’s plan to extend the Senior Managers Regime to all financial intermediaries and asset managers in the UK.

Survey Methodology

More than 125 corporate directors, risk officers and compliance executives in the UK participated in the survey, which is the fourth in a series initiated in 2011. The majority of respondents, 56 percent, worked in public companies, as compared with 38 percent from private companies. In terms of international reach, 39 percent worked in companies that conducted most of their business in the UK, while 35 percent described their businesses as global.

*This story appeared previously in our sister publication Insurance Journal.