Directors and Officers (“D&O”) Liability Insurance is insurance cover available to the directors or officers of a commercial organisation, or to the organisation itself, for investigation or defence costs or damages incurred in respect of an investigation, prosecution or civil claim for alleged wrongful acts (while acting in their capacity as directors or officers of a commercial organisation).
The Bribery Act may impact on D&O Liability Insurance in a number of respects. In the first instance, it should be noted that, while it will depend on the specific terms of the D&O policy in question, claims where fraud or dishonesty has been proven (or admitted by the director, officer or commercial organisation) will usually be excluded. Further, criminal fines or penalties, along with associated costs that are considered to be against public policy to insure, are also usually excluded from D&O policies. Consequently, given the nature of the crimes dealt with by the Bribery Act, it is questionable whether D&O cover will ever extend to breaches of its provisions.
That said, the terms of D&O policies differ as between commercial organisations, due to their different risk profiles and requirements (in this regard, in deciding whether to insure the directors and officers of a commercial organisation, underwriters carry out a similar exercise to that discussed in my previous post, which deals with internal risk assessment). Therefore, the advent of the Bribery Act may well lead those purchasing D&O cover to (re)negotiate with underwriters to obtain specific cover for any investigation, prosecution or civil claim under the Bribery Act.
Where such cover is obtained, it will need to address the possibility of senior officers of a commercial organisation being found liable under section 14 the Bribery Act (which requires the “consent or connivance” of the senior officer(s)). This offence relates to circumstances where the commercial organisation in question is guilty of one of the three ‘individual’ offences: bribing another person (section 1); being bribed (section 2); or, bribing a foreign public official (section 6).
The cover will not, on the face of it, need to take into account the corporate offence of failing to prevent bribery (section 7). However, it is arguable that, where a company is unable to prove that it had in place adequate procedures to prevent bribery (effectively, the defence to the corporate offence), this could be viewed as a corporate governance failure. This may, in turn, lead to a civil claim being made against the director(s) by the company’s shareholders.
Therefore, with those purchasing D&O cover being keen to insure for breaches of the Bribery Act, underwriters are likely to require commercial organisations to have adequate compliance procedures in place before issuing, or renewing, D&O Liability Insurance policies. At the very least, the absence of such compliance procedures will increase the premiums that will be demanded by underwriters. At most, D&O cover may not be available at all.
The availability of D&O Liability Insurance is, therefore, yet another reason why compliance officers need to now take a good hard look at their company’s compliance programmes.