The changing regulatory landscape in the UK and emerging risks
Historically, D&O risks were weighted towards securities litigation in North America, with many other territories experiencing a benign claim environment. This has changed in recent years. According to Chubb’s own data, the average large loss cost for D&O policies in the UK has tripled and the number of claims has increased by a third in the last decade, compared to the previous decade.
In addition to the more established exposures set out above, we are seeing early stage changes in the legal environment that are beginning to impact exposures to directors and officers and therefore potential D&O claims:
Chubb Claims Example
» Seventeen fatalities resulted from severe property damage at our client’s location and the subsequent pollution. The company’s share price dropped significantly and its operational licence was suspended until they agreed to settle a civil claim brought by the government. Our client and several of the individual directors now face a US Securities class action, where allegations include that materially false information was provided to investors regarding health and safety and the risks posed by the property. These representations artificially inflated the price of the American depositary receipts, causing a large loss to shareholders when the price crashed following the property damage.
» The headline loss is over $1bn. At the same time, the company and several individuals face criminal prosecution by the Authorities where the premises were located. Chubb are working with both the company and the directors to resolve the Securities Class Action and support the individuals in the criminal action.
When environmental exposures impact on share price then there is always the possibility of vulnerability to claims.
In terms of product liability the key issue will be deciding what senior management knew, and when, in order to determine whether conduct exclusions are relevant and to understand potential defence cost exposures.
Directors and officers may be exposed if, for example, they were shown to be failing to address issues within a working environment; to devise and implement policies to protect employees; or if they didn’t investigate claims thoroughly.
Directors and officers may also be held liable for failing in their supervisory duty to protect the data within an organisation or for a lack of proper controls to prevent cyber-attacks and fraud.
More UK Class Actions
Shareholder group actions are growing in number in the UK and are brought against commercial as well as financial entities. Some shareholder group actions have been fuelled by third party litigation funding whilst others are the result of the increase in claims from other jurisdictions. This type of global “forum shopping” by shareholders, due to the extra territorial nature of some mechanisms such as WCAM in the Netherlands, are leading to the possibility of multiple actions and settlements arising out of the same issues. From a D&O perspective, this clearly heightens cost and complexity.
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