FINPRO Coverage Considerations: Why Should a Company Consider Placing Locally Admitted D&O Policies Outside the US?
Many companies might already consider their directors’ and officers’ liability insurance policies to be global. After all, many policies contain a territory clause stating that it will pay claims made anywhere in the world (where legally permissible). But are you confident about where these claims will be paid?
What is not specified is where the insurer would pay these claims — where the policy was written, or, in the local jurisdiction where a local claim needs to be investigated and defended.
Note: Generally speaking, executives prefer to have their expenses advanced in the jurisdiction where they need to pay for their investigation and defense, along with covered settlements and court awards.
Here are four occasions when companies should consider supplementing their D&O program with local placements:
- When an organization’s current policy or program may not be able to pay local claims in the local country because such jurisdiction does not permit non-admitted insurance.
- Where non-admitted insurance is not permitted, the “global” policy is not allowed to pay in that country where the D&O claim may have been brought.
- When the first line of defense for corporate executives — the right to corporate indemnification — is unclear, untested or unexpected. Note: There may be a substantial overlap of jurisdictions where non-admitted insurance is not permitted and the right to corporate indemnification (and advancement) is neither clear cut nor guaranteed. As such, there could be the risk that the personal assets of a local director or officer are exposed.
- When compliance concerns are significant, often arising in the context of applicable local premium taxes. A number of local tax authorities have taken the position that if local persons or property are insured under a policy placed in another jurisdiction, then they, locally, are owed premium taxes on the relevant portion of the “global” insurance premium. Where permitted, the insurer issuing a local D&O policy typically assesses, collects and remits relevant premium taxes where legally permitted from and for the local insureds, addressing this compliance concern.
- Where a company or a local board simply desires to see their local coverage in their local flavor, including their local coverage nuances.
NOT PART OF THE EQUATION
It is important to note that unlike property or bonding coverages, local D&O insurance is not compulsory, or mandatory, in jurisdictions around the world. In fact, local D&O coverage is only very rarely legally mandated by local law.