The International Consortium of Investigative Journalists’ reporting on the private client files of a Panamanian law firm, popularly known as the ‘Panama Papers’, has caused quite a stir due to the inclusion of many high-profile personalities, especially public officials from various nations. Many corporations and financial institutions were also named in the leak.
According to a blog post by Finley Harckham, Marshall Gilinsky, and Peter Halprin of law firm Anderson Kill, businesses and other organizations named in the Panama Papers should carefully review their existing insurance policies, especially D&O (Directors and Officers) and E&O (Errors and Omissions), for potential coverage.
D&O policies cover directors and officers of corporations against claims caused by their status or conduct as decision-makers of their organizations. Some D&O policies also cover the corporate entity with respect to claims alleging violations of securities law. Therefore, D&O insurance can provide financial institutions and their officers with cover in case securities-related claims or shareholder derivative suits arise.
On the other hand, E&O policies cover companies and individuals against losses resulting from acts, errors or omissions in their performance of professional duties. Regulatory investigations may also be covered in these policies.
Most D&O and E&O policies cover government investigations into the organization’s business operations and accounting practices, even those done by the government to determine possible violation of law. The policies will also cover “defence costs” in response to said inquiries. However, policyholders must take note that insurance companies may argue that an informal document request by a regulatory agency, as compared to a formal investigation with the exercise of subpoena power, will not be considered a claim according to their D&O and E&O policies.
The protection offered by these policies is becoming more and more valuable to any financial institution. Cooperation and negotiating with regulatory agencies can help with an early and less public resolution of any changes. Accordingly, coverage for defence costs at the informal stage will not only help lower the direct costs, but will also be vital in averting a formal investigation and perhaps even expensive fines.
Brokers are encouraged to advise their clients, especially those included in the Panama Papers, to carefully review their D&O and E&O coverage. The earlier insurance is in place, the easier it is to deal with potential problems that may arise.
