You have D&O insurance right? If you’re a director of a large listed company, the chances are that you have probably been told that you have a tower of cover worth some 10s or maybe 100s of millions of dollars and that all the carriers on the insurance programme are reputable and with strong credit ratings.
So far so good.
You probably also understand that the policies operate on a “claims made” basis—i.e. they respond to claims made against you alleging personal liability in your capacity as directors.
What happens though if you get caught up in a regulatory investigation or enquiry and your company either can’t or won’t pay for the costs of your legal representation or perhaps they can and do but such support comes with strings attached designed to protect the company’s position rather than your own?
It does not take a very clear crystal ball to reveal that regulatory risk will be one of the greatest exposures for individual directors in 2013 and beyond. Yet (or perhaps for that very reason) D&O insurers are wary of opening their cheque books for legal representation costs in the context of investigations in the absence of an actual claim.
To use the jargon, insurers often impose “late triggers” on this cover, meaning they require that the investigation be well advanced before they agree to pay.
The risk here for directors is that by the time these triggers are engaged they may already have said something that they later have cause to regret.