Claims against corporate directors and officers are no longerexclusively a U.S. phenomenon, D&O insurance experts fromWillis told risk managers and executives during a Webcast seminarlast month.

In fact, insurance buyers and other risk officers who think onlyabout the U.S. plaintiffs' bar when they turn their attention toD&O liability issues miss a world of problems in whichexecutives can face litigation simultaneously in several parts ofthe globe, according to Ann Longmore, Willis Executive RisksPractice D&O product leader.

Beyond U.S. borders, regulators–not lawyers–take the lead onD&O claims, said Julian Martin, executive director of Willis'Financial & Executive Risk practice in London. Outside theUnited States, he said, the anatomy of a typical claim begins witha regulatory investigation into fraudulent or criminal behaviorinstead of a civil suit.

These investigations later impact the share price of a company,which eventually can result in a follow-on civil suit, he said,reversing the typical U.S. process described by Ms. Longmore.

Facilitating a “new reality” of worldwide D&O exposure, Ms.Longmore said, “a regulatory bridge” has been built over the last20 years–a regulatory framework of cross-border enforcement andcooperation that allows cross-border litigation.

Illustrating how regulatory cooperation is driving an increasedfrequency of claims brought outside the United States by localregulators, Mr. Martin displayed a list of eight recent casesagainst corporate directors and officers brought by regulators inAustralia, France, Italy, South Korea and Sweden.

In addition, he showed that the number of requests made by or toforeign regulators for securities enforcement assistance hasincreased in recent years to a level near 800 per year for each ofthe last four years.

Cross-border sharing of information between regulators can havedangerous consequences of directors and officers beinginvestigated, since different liability standards apply indifferent parts of the world, Ms. Longmore noted.

“Evidence that might get you off the hook in one jurisdictioncould establish your liability in another,” such as the UnitedStates, where intent to deceive is a somewhat unique fraudstandard, she said.

After painting a picture of ever-increasing exposure, the Willisteam also explained that directors and officers can be left highand dry if their companies don't have a D&O insurance programthat responds globally to cover claims.

That's because in some jurisdictions, “corporate indemnificationis strictly prohibited,” she said. In other words, corporationscannot legally protect individuals named in suits or investigationseven if they have the financial wherewithal to do so.

Further complicating matters, she said it is not the law of thecountry of the parent company that determines if indemnification isallowed. Instead, the local law of each and every subsidiary mustbe considered, she noted, pointing out that some corporations havehundreds of worldwide subsidiaries.

Delivering good news, Mr. Martin said D&O insurance policiescan be written to respond globally if buyers take care to ensurecertain provisions are correctly worded. These include a globalterritory provision affording worldwide coverage and languagedefining the “functional equivalents” of U.S. directors andofficers “as we understand them” in other parts of the world.

Other important issues to address are tax compliance andquestions of whether a D&O policy is legally able to respond inthe jurisdiction where a D&O claim is made, the Willis expertssaid.

Most countries–roughly 85 percent—prohibit or limit nonadmittedinsurance, according to Claude Gallello, international practiceleader at Willis. (He defined “nonadmitted” as insurance placedoutside the country where exposure to loss is located.)

Penalties for corporations that buy nonadmitted insurance runthe gamut from fines and penalties to imprisonment, he said.

“Some clients buy one local policy; some buy 100,” Ms. Longmoresaid, noting that corporations need to match their “globalfootprints” with those of potential insurers, comparing insurerabilities to deliver local policies where needed.

In addition, she said, insurance buyers should coordinatecoverage between master and local policies.

Mr. Gallello explained that a control master program existswhere a single insurer provides a master policy in the countrywhere the parent is located. The master policy acts in an excesscapacity over the policies issued locally by that same carrier.

“Where legal, the local policy should mirror the master,” hesaid, noting that in other situations, the local policy is issuedto follow the local laws, while the master policy comes in abovethe local policy “in an excess and difference-in-conditionscapacity”–pulling local coverage up to standards consistent with acorporation's risk management philosophy.