Personal risks facing board members of European companies



FW moderates a discussion looking at the personal risks facing board members of European companies between Richard Highley at DAC Beachcroft LLP, Chris Hewitt at Lockton Companies LLP, and Marc van der Veer at Torus Insurance.

Would you agree that the overall personal risks facing European board members are rising in today’s challenging business environment? 

Hewitt: Unquestionably the personal risks for board members have increased and will continue to increase, regardless of the current European economic environment. The accountability of directors to both their stakeholders and regulators is increasing. The regulatory environment continues to impose greater responsibility as a result of increases in the legislation. Trading within and outside of Europe requires greater due diligence and compliance. The global economic situation, for example, has amplified the decisions of the board with regards to trading partners and the due diligence conducted to ensure their final solvency.

Highley: Challenging economic conditions leading to shareholder losses, greater scrutiny from regulators, and potential corporate insolvency increase the risks of directors facing investigation or claims. Furthermore, a feature of boom and bust cycles we have witnessed in the past has been the uncovering of corporate fraud during periods where losses cannot be hidden because economic hardship has led to heightened scrutiny of a company’s books. Wherever there is large fraud, board members are at risk of investigation. And of course, there has been much focus recently on the need for, and the lack of, economic growth. I mention this tentatively in this context, but in the UK we have the recently enacted the Bribery Act, and if bribery were to occur due to the increasing pressures on achieving growth in challenging times, board members even if not involved personally, may face individual investigation and criticism if the company is faced with criminal sanctions because they cannot establish that a sufficiently robust and compliant anti-bribery policy is in place. Finally, in the internet age, hiding allegations of corporate misbehaviour is increasingly hard and this increases the risks of directors facing investigation following critical, or even vengeful, press and public.

Van der Veer: In the wake of the global financial crisis the scope of regulatory oversight has increased significantly. This has substantially increased the cost of compliance for both private enterprises and publicly traded companies. New statutory and regulatory liabilities have created new avenues of liability and heightened exposure for companies and their directors, officers, and managing and supervisory boards. The ongoing debt crisis in the Eurozone and the potential for a further economic downturn increases the likelihood of financial impairment and insolvency for companies in this distressed environment. The single largest exposure for personal liability facing directors, officers, and managing and supervisory boards of both small and large enterprises is bankruptcy, where the directors, officers, and managing and supervisory boards can no longer rely on the balance sheet of their companies to indemnify and protect them in the event of claims made against them. If the company has become insolvent then the directors will not be reimbursed for the costs and their personal assets are likely to be more at risk.

Could you highlight some of the major themes you have seen in recent D&O litigation in Europe? Has there been an increase in the number of such cases over the last 12-18 months?

Highley: Insolvency is the most predictable catalyst for claims against directors. In the UK the volume of insolvencies, perhaps surprisingly, has not shown a sharp increase. In contrast, in Spain, the number of insolvency proceedings has increased in the last two years from some 500 to some 1800.  I understand from my colleagues in Madrid that the Insolvency Act in Spain provides for a specific liability of directors in respect of the company’s deficit. The UK Government review of the imbalance between the UK/US Extradition requirements has now been published and is worthy of comment. Surprisingly, and incorrectly in many peoples’ view, no imbalance has been found and it recommends no change to the present position.  Recently, MP's have voiced serious dissent over this.  However, in consequence, the US will doubtless continue to pursue D&Os of UK companies – for perceived US crimes – under the extradition treaty. Although not a major theme emerging in the UK, there are a rising number of disputes between private equity investors and original – pre equity investment – board members which can presumably be linked to the difficult economic climate and trading conditions, and the seeming inability of both sides to agree on the best way forward for the company in a challenging environment.

Van der Veer: In the aftermath of the global financial crisis and the impairment of major global banking institutions in Europe, the UK, Ireland and the US, European investors – especially those who purchased highly illiquid mortgage backed derivative instruments – have sought redress in the US courts for those investors who purchased these instruments on European securities exchanges. The prospect of European financial institutions and multinational issuers and their D&Os being dragged into US courts had the potential to greatly increase the exposure of European boards going forward. Fortunately, the US Supreme Court’s June 2010 decision in Morrison v National Australia Bank has closed this potential avenue to European investors and abated this potential exposure to European board members. These changes in the legal environment will likely result in a decline of such cases being brought in the future and reduce the significant exposures of US litigation to European boards.

Hewitt: MF Global is a classic example of the exposure one company had to the European financial markets which they were over exposed to. There are numerous unanswered questions about their business model, which at present are being investigated.

What types of claims are being brought against D&Os? Have any ‘new’ areas of D&O liability emerged?

Van der Veer: The global financial crisis has heightened regulatory activity and new rulemaking around consumer protection and financial disclosure. New work rules and expanding employment and labour laws have created new liabilities for employers large and small, and the European Union is at the forefront of creating the legal framework around privacy and the internet.

Hewitt: There do not appear to be ‘new’ D&O claims as such. The dominant factor is the financial loss that someone has sustained as a result of the actions of the D&Os. Therefore, as we see deteriorating company balance sheets, the potential for claims increases. However, as there is an overall deterioration of all companies’ balance sheets and profit and loss accounts, due to a global economic slowdown, it is sometimes more difficult to differentiate between those who have been negligent and those who have simply been caught in the downturn.  

Highley: The UK Bribery Act is the obvious and most discussed ‘new’ area of exposure for directors. It has its own ‘long arm’ provisions extending liability beyond the UK in respect of acts of foreign subsidiaries and agents. The UK authorities are actively encouraging self-reporting and looking for companies to prosecute. The new corporate offence under the Act is one which the Americans are considering adding to their Foreign Corrupt Practices Act, which at present is limited to the bribing of foreign officials only. In Spain, we have started to see a very limited number of new criminal actions against companies and directors as a result of the reform of the Criminal Code; this incorporates criminal liability for companies in the case of crimes committed by employees who were not properly supervised.

To what extent is the European litigation landscape changing? For example, are you seeing more securities class action lawsuits against D&Os in Europe?

Hewitt: Legal changes and shareholder awareness have created a greater opportunity for class action lawsuits. In many jurisdictions it is still difficult; however, the regulators and legislators are very aware that they need to review the law in order to enable greater opportunity for minority groups to have more opportunity to bring such actions.

Highley: We have not seen a rise in securities class action lawsuits in the UK or Spain. However, in the last few years more countries have enacted legislation allowing shareholders to claim for investment losses. Germany, Italy, the Netherlands and Sweden are examples. In Spain, many recent pieces of legislation – tax law, environmental law, employment law, insolvency law – have specific provision for liability of company directors. In the UK, there are additional board duties under the 2006 Companies Act. We have witnessed regulators in Europe upping levels of activity in their search for targets and for certain sectors, raising funds by way of civil recoveries rather than criminal penalties, much in the US mould. The UK OFT has raised over £500m in the last three years – 1 percent of the turnover of the companies affected – and is about to increase the level of penalties to a maximum of 30 percent of turnover in its investigations of criminal cartels and other competition law offences. Price fixing is the headline offence, although this is only a small part of the OFT’s wider remit.

Van der Veer: We have seen developments in competition and consumer laws in Europe. The frequency of individual direct action claims and derivative claims on the parts of European security holders have marginally increased but the severity of claims in the European context is moderated due to the user pay system and the absence of jury trials in European civil proceedings. Fortunately, in Europe to date there is little evidence of claims ‘social’ inflation in contrast to the US where claims quantum is driven upward by plaintiff contingency fees and the prospects of large jury-decided damage awards. While European companies continue to benefit from a lack of class action lawsuits and punitive damages awards, unfortunately the increasing number of bankruptcies in Europe has resulted in a rise in claims from creditors and shareholders. It is difficult to gauge the impact of the Eurozone debt crisis but it seems very likely that there will be more downsizings and insolvencies in 2012. We anticipate, therefore, claims from employees, tax authorities, creditors, shareholders and regulators against directors, officers, and managing and supervisory boards will only continue to increase.

What affect are increased regulation, penalties, damages and settlement figures having on the costs associated with defending D&O claims?

Highley: Costs, not civil damages, represent underwriters’ largest exposure under D&O policies. Increased regulation means an increasing number of investigations leading to claims under D&O policies. Furthermore, a feature of D&O liability is the prospect of conflicts arising between the individual directors leading to the instruction of multiple defence lawyers. Costs are undoubtedly rising and we consider many of the policy limits in place too low, given the potential erosion of these limits by costs. 

Van der Veer: Defence costs are the most likely cause of increased losses for European directors and their insurers. Penalties are not often covered as that is generally considered against public policy. It is most likely that a claim will be settled or dismissed and there are not many damages awards. D&O litigation is, however, quite complex and expensive for those cases that do pass the initial stages and in the context of an ever-more persistent regulatory regime. Proliferation of claims expense is fortunately offset in the European context by the absence of contingency fees and the loser pay rules of civil procedures which mitigates the number of frivolous court proceedings.

Hewitt: Costs are increasing. The defence teams for insureds are spending more time in defence of claims, which drives up the costs.

In your opinion, how important is D&O liability insurance as a tool to mitigate the personal risks to European board members?

Van der Veer: Given the current climate, and when one considers the possible ramifications and impact to individuals’ personal assets, it is extremely difficult to understand why a single director would leave himself uninsured and exposed to legal liability and personal financial loss. Depending on the country, companies are not always able to indemnify and protect their directors. Furthermore, depending on the circumstances, the company, even if legally able to, may decide not to or be prevented from doing so.

Hewitt: Defence costs for D&Os, whether drawn into investigations by regulators, or litigation from stakeholder or third parties, can be significant. In the event the company is unable, or unwilling, to assist, those individuals are then going to have to pay for their own defence. They may not have the financial ability to arrange for the best defence team to assist them. As a result they stand to lose everything. Furthermore, if damages are awarded against them, it could wipe out all their assets.    

Highley: Faced with claims or investigations, the interests of directors, as between themselves, or as between them and the company, are often not aligned. There is simply no substitute for D&O defence costs cover in these circumstances. 

What is your advice to companies and their D&Os when assessing the terms, coverage and pricing of a D&O insurance policy? What are the key areas to negotiate in such documentation?

Hewitt: The key is to ensure that the coverage is comprehensive with regards to defence costs. The indemnity limits must be for the full policy limit in this regard. Do not have any sub-limits with regard to any areas, as this dilutes the coverage. Ensure there is adequate cover that is directly applicable to the directors and non-executive directors. Ensure that the carriers on the programme are reputable markets that have been underwriting this product for many years and have a good claims track record. New entrants can still be good, but get to understand what their strategy is for the product. Stability of carriers in your programme is important. If you change your carrier frequently, remember you are breaking continuity and understanding of your business. Also, if you have built up a premium base with a carrier, they are going to look more favourably on you when you have a claim.

Highley: D&O cover is being widened every year. If bought from a reputable broker specialising in D&O insurance the extent of cover is unlikely to be a particularly controversial issue, although there are some policies which are more generous than others. To my mind the area often given insufficient consideration is that of the overall policy limits. Companies and their directors should have in mind the rapid likely erosion of the policy limit if the company and its board of directors face a serious investigation or piece of litigation involving several board members.

Van der Veer: The more coverage in terms of limits, the more security and peace of mind the directors should have. For the company, it may be obliged to indemnify individuals and balance sheet protection can be afforded by purchasing insurance. For individuals it is even more important and it is crucial to ensure adequate limits are in place for any individual at any time. Cover that provides extensions which erode policy limits may sound good but ultimately the indemnity cover may be exhausted by the time the real problem claim arises. Where possible, individual directors, especially those that sit on multiple boards as outside directors, should always insist on proof of sufficient D&O coverage being in place prior to them accepting any board-level position.


Richard Highley is a partner at DAC Beachcroft LLP. He deals with large commercial disputes, international litigation, and substantial professional negligence actions, in particular related to banking, company/commercial law, financial institutions, and accountants’ liability. Mr Highley has specialised in D&O insurance for many years and is a trained mediator. He can be contacted on +44 (0)20 7894 6470 or by email:

Chris Hewitt is a partner at Lockton Companies LLP. He has 25 years experience in the insurance industry industry across both underwriting and, latterly, broking. Mr Hewitt has been involved with major global commercial and financial institutions from both a broking and underwriting perspective. He provides invaluable insight from both the underwriter’s and broker’s viewpoints and has been involved in many high profile companies from a D&O liability perspective. His experience and knowledge have proved to be invaluable in achieving comprehensive coverage and meaningful limits of indemnity for his clients. He can be contacted on +44 (0)20 7933 2212 or by email:

Marc van der Veer is Chief Underwriting Officer Specialty Europe at Torus International. He leads the Professional Lines underwriting platform in Europe, which incorporates Professional Indemnity, Financial Lines, Management Liability and D&O. Mr van der Veer joined Torus in 2009 to launch the insurers’ specialty division in Europe alongside Dermot O’Donohoe, Chief Executive of Torus International. Mr van der Veer has over 15 years of Specialty Insurance experience. He can be contacted on +31 624 340 345 or by email:

© Financier Worldwide



Richard Highley

DAC Beachcroft LLP


Chris Hewitt

Lockton Companies LLP


Marc van der Veer

Torus Insurance

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