D&O Insurance Coverage Issues
Regulatory and criminal investigations and prosecutions under D&O policies raise important issues.
Policy triggers for regulatory and criminal investigations can be a grey area. Considerable latitude exists between routine enquires by regulators that are part of business operations (for example a routine request for information by the FSA) and a crisis event that triggers internal and external investigations and dealings with the authorities for dishonesty or fraud. There may be agreement that the first is not an insured risk and the latter probably is, but what about the permutations in between?
Uncertainty is confounded by the absence of a standard D&O wording. Policies may contain separate "investigation" cover. In addition, investigations may also be "claims" under the policy's Side A or Side B cover.
In each case it will be necessary to pay attention to the expressions that are used as part of the trigger for cover. These are subject to interpretation, and there is at present little case law on these areas. For example, if the policy provides investigation costs cover in relation to meetings that an individual is "required to attend" does that mean legally required to attend? Does it depend if there is a penalty for not attending?
There can also be practical issues in relation to areas such as how costs should be split between claims against individuals and the company, and how to distinguish what is covered and what is not where there are parallel civil and regulatory proceedings. There can often be conflicts of interests between individuals necessitating the use of multiple law firms. Therefore, costs need to be controlled. Finally, conduct exclusions for dishonesty or fraud tend to bite only after adjudication has taken place which can mean that the policy limits will be eroded by dishonest parties, leaving innocent individuals with limited cover.
Another issue that arises is whether the insurer is able to access information from the insured in relation to an investigation, without the insured waiving privilege in that information. In England, common interest privilege is relatively wide, and the courts are happy to find that such privilege exists between insurers and insureds where their interests are not identical but closely related. So, for example in civil litigation, it is likely that common interest privilege will still exist under English law even where there is a reservation of rights in place. In the US, the law on...
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