Director’s and Officers Insurance: Does it Cover the UK Bribery Act?

 
In this new era of UK Bribery Act enforcement and compliance, companies need to re-examine their existing Directors and Officers (D&O) insurance to make sure it covers UK Bribery Act liability.

Most important for compliance purposes is the new section 7 of the UK Bribery Act which establishes a strict liability corporate offense for failure to prevent bribery. The only defense for the company is to show that it has "adequate procedures" to prevent bribery (by employees and those “associated” with the company). Directors can be held liable if they consent or participate in such a violation.

Companies need to consider if their D&O insurance provides adequate coverage for UK Bribery Act liability.

The UK Bribery Act has sweeping extraterritorial reach – premised on a company doing business in the UK.  In the face of this increased exposure insurance, companies now need to weigh the risks and determine whether policy or premium modifications are warranted.

Some D&O insurers have added exclusions for all claims arising under the UK Bribery Act and FCPA, or offer minimal coverage for an additional premium. Companies that operate in the UK need to examine these provisions carefully and consider alternative providers which may offer coverage.

The D&O insurance market is in flux on FCPA and UK Bribery Act liability until there is a more stable enforcement record and history. It is likely that D&O insurers will adjust their policies for certain industries where there may be higher risks, or try to adjust their policies to cover certain business activities prohibited by the UK Bribery Act but permitted by the FCPA (e.g. facilitation payments, commercial bribery).

FCPA fines and penalties are already often excluded from a D&O policy’s definition of covered “loss,” but companies have often been able to negotiate policy enhancements that allow coverage for FCPA civil fines and penalties awarded against individual directors and officers, or for non-willful FCPA penalties awarded against them. Companies doing business internationally should try to expand the definition of "loss" to cover directors and officers under the UK Bribery Act.  Because the UK Bribery Act imposes strict liability regardless of intent, however, it may become more difficult for some companies to obtain coverage.

Most D&O policies also exclude coverage for claims arising out of fraudulent, dishonest or criminal acts. Companies  have commonly negotiated “final adjudication” language into these exclusions, so that they and their directors and officers will not be deprived of defense coverage merely because someone alleges that they have committed an FCPA violation. The same solution will be needed for UK Bribery Act.

FCPA investigations are costly.  The UK Bribery Act will increase those costs.  Many D&O policies do not include investigations under covered "claims,"  or include limitations.  Again, companies will have to make sure that investigations cover both FCPA and UK Bribery Act liability (whether the director or officer is a subject or target of the inquiry).   Companies also need to ensure they are purchasing adequate D&O indemnity limits, or the costs of responding to an investigation can exhaust the policy limits, leaving nothing to indemnify the individual directors and officers for settlements, fines or penalties, or securities lawsuits brought by disgruntled investors.