Magazine article Risk Management

An Increasingly Foreign Concept

Magazine article Risk Management

An Increasingly Foreign Concept

Article excerpt

There was a time when the words "class action lawsuit" were rare in countries outside the United States. Today, a surge in corporate scandals as well as more stringent corporate governance and the adoption of new laws in countries around the world have created a changed environment.

A recent settlement by Royal Dutch Shell with its European investors for $400 million, as well as other settlements in excess of $100 million in Canada, Germany and the Netherlands, demonstrate that directors and officers (D&O) liability lawsuits are becoming more common and more expensive outside the United States.

Simply put, U.S. companies are more at risk of a foreign D&O liability lawsuit. Business is "going global" at a frantic pace. According to the 2007 Chubb International Risk Survey of U.S.-based companies, C-level executives and risk managers reported that about 75% of the companies plan to expand their foreign operations or introduce new products outside the United States.

As businesses go global, U.S.-style litigation is following on their heels, which means risk managers have more to worry about. In fact, more than half (55%) of C-level executives and risk managers believe that D&O liability is becoming a more significant source of risk outside the United States and Canada, according to the Chubb survey. Risk managers have naturally begun asking questions like, "Will my U.S. policy cover me in India or China?" and "Will our D&O coverage work as intended?" Local country managers are asking their head offices, "Do I have D&O coverage?"

Protecting a company from a D&O liability lawsuit in countries outside the United States can be complicated. In some countries, such as Brazil, individual risk can be amplified. If a locally admitted D&O liability insurance policy is not provided and the company cannot indemnify the director or officer, the individual may not have protection beyond his or her assets. Further, it is possible that the regulator may have the ability to freeze the personal property and bank accounts of local directors and officers who are being sued.

The "tipping point" for international D&O liability requirements may have occurred in late 2006 when Romania became the first European Union country to make D&O liability insurance compulsory for businesses.

What is important for risk managers to recognize is that although the biggest cases tend to draw the most media attention, any company can be sued inside or outside the U. …

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