Executives at risk from new liability scenarios and anti-corporate litigation culture
New risks such as cyber incidents or data privacy, rising regulatory and shareholder activism, and the influence of third party litigation funders are putting corporate leaders under more pressure than ever of falling foul of investigations, fines or prosecution over alleged wrongdoing, says Allianz Global Corporate & Specialty (AGCS), a leading provider of Directors and Officers (D&O) insurance globally.
Directors and officers are walking a managerial tight-rope as executive liability continues to increase annually. There is a growing trend towards seeking punitive and personal legal action against executives for failure to follow regulations and standards which could result in costly investigations, criminal prosecutions or civil litigation putting the company's assets, or their own, at risk, AGCS says in its new report, D&O Insurance Insights: Management liability published last month.
By Financial Nigeria
In Nigeria, the directors of a company can be held personally liable for their executive actions where such actions are not in conformity with the company's charter as set out in its Memorandum and Articles of Association.
“While the legal landscape differs strongly from country to country, increasing shareholder or regulatory action has become a global phenomenon that needs to be given top priority within companies' internal risk management departments,” said Bernard Poncin, Global Head of Financial Lines, AGCS.
D&O litigation – lengthier and more costly
According to AGCS analysis, noncompliance with laws and regulations is now the top cause of D&O claims (AGCS analysed 576 claims between 2011 and 2016) by number, followed by negligence and maladministration/lack of controls. The average D&O claim for breach of duty costs over $1 million (€1 million). However, in large corporate liability cases D&O claims can be valued in the hundreds of millions of dollars. AGCS observes a general trend for D&O claims to be dismissed or resolved more slowly, meaning lengthier litigation, increased defence costs and higher settlement expectations. For example, the average US securities class action case takes between three and six years to complete while legal defence costs average around $10 million, rising to $100 million for the largest cases. In the past six years defence costs have almost doubled for large D&O claims in the US. The influence of third party litigation funding is also changing the global litigation map, with it being pivotal in the development of collective actions against financial institutions and commercial entities and their directors and officers.
Litigation against companies and their officers is on the rise. In the US, the number of security class action filings is rising and, at mid-year, was on course for its highest annual total for 12 years. Many Asian countries such as Japan, Hong Kong, Thailand and Singapore are also moving towards a more litigious culture. The increase in claims has also been pronounced in Germany where the number of D&O claims for AGCS alone has tripled in the past 20 years.
D&O developments in Africa
D&O insurance is on the rise in Africa as a result of developments in corporate governance legislations and codes, which have codified directors' liability. In general the directors of a company in most African countries can be held personally liable for their executive actions where such actions are not in conformity with Memorandum of Incorporation. Because a company may not indemnify its directors and officers, there is no guarantee however that the company will pay the heavy financial burden of defence costs in prolonged legal proceedings or damages awarded. The company may also not have the financial