corporate entity's knowledge and access to information to bring ... Lloyd's Broker. Authorised and ... This will likely
RISK FOCUS FINANCIAL LINES GROUP BULLETIN AUGUST 2016
The Yates Memo and D&O insurance Globally there is an increased focus on individuals being held responsible for what was historically seen as corporate wrongdoing. This bulletin examines the Yates Memo and the trend generally, and the possible impact on director and officer (D&O) insurance.
WHAT IS THE YATES MEMO? In September 2015, Deputy US Attorney General Sally Quillian Yates issued
following criticism that individuals were able to hide behind the corporate veil following the global financial crisis.
CRITICISM OF THE YATES MEMO There has been public criticism of the
a memorandum to all attorneys at
The crux of the Yates Memo is that in the
memo. In May 2016, the US Chamber of
the US Department of Justice (DOJ)
course of an investigation by providing
Commerce’s Institute for Legal Reform
entitled “individual accountability for
the DOJ with all the relevant facts about
published a report criticising the Memo’s
corporate wrongdoing”, known as the
individuals involved in the misconduct, the
“all or nothing approach” to cooperation
Yates Memo. The Memo encourages
company can earn cooperation credit.
credit and for seeking to “leverage a
federal prosecutors to hold individuals
Exactly what would satisfy the test of all the
corporate entity’s knowledge and access
personally liable for what may have
relevant facts is not clear. It is anticipated
to information to bring cases against their
been historically viewed as corporate
that by cooperating with the DOJ the
own employees.”
misconduct. The Memo starts with
company could resolve the matter with
the assumption that “one of the most
the DOJ from a company perspective and
effective ways to combat corporate
leave the individuals to be pursued.
misconduct is by seeking accountability from the individuals who perpetrated the wrongdoing”. It has no doubt come
The report warned that employees may find their own interests to be at odds with their company’s interests, which could result in employees seeking separate legal representation, increasing the cost,
2
FINANCIAL LINES GROUP BULLETIN | Risk Focus | August 2016
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complexity and length of investigations.
Companies and their D&O’s should also be
Further concerns raised are the operation
focused on the scope of the cover they have
of data protection legislation restricting
under their D&O policies for investigations
the transfer of employees’ data and
and pre-investigations to ensure the policies
uncertainty in relation to legal privilege,
respond at the earliest possible opportunity
and how it will interact with self-reporting
to legal costs being incurred.
regimes. All issues for thought.
Perhaps most important however, is the conflicts that could emerge between
partner teams to work side-by-
WIDER GLOBAL TREND OF INDIVIDUAL ACCOUNTABILITY
side with you, our network and the
The Yates Memo however is only one
policy directly without the company’s
marketto deliver responses which
part of the developing global trend of
involvement and notice provisions will
are carefully considered from all
individuals being held accountable for
need to allow for this. One could also see
angles.
corporate wrongdoing. In the UK this
a scenario where the company makes an
year, we have seen the introduction of
admission and the policy wording should
both the Senior Managers Regime (SMR)
ensure that such admission is not also
in the financial sector, and the Senior
able to be attributed to an individual.
to provide expert advice and robust -often unique - solutions. We build
Our London based Financial Lines Group consists of over 120 financial lines specialists. The team has a strong technical focus with an integrated client servicing, broking and claims service.
Insurance Managers Regime (SIMR) in the insurance sector. The FCA has made no secret of the fact that individuals need to be held accountable and these regimes are tools by which they will do this. We have previously released notes on each of these regimes.
CONTACTS Carey Lynn Partner +44 20 7558 3521
[email protected] Kurt Rothmann Partner +44 20 7528 4961
[email protected]
WHAT DOES THIS MEAN FOR D&O INSURANCE? In terms of D&O insurance, this likely means that there will be more individuals being targeted and in turn an increase in individuals seeking cover for legal costs as a result of investigations against them. Companies and their D&O’s will need to check their policy limits are sufficient to cover the worst case scenario of multiple individuals
the company and the individuals being prosecuted. This will likely result in individuals seeking to access the
Further, such conflicts are likely to impact the company’s ability to indemnify pursuant to a contractual indemnity, articles of association or otherwise, and further the DOJ will no doubt take a dim view of companies providing indemnity while at the same time seeking to put them forward as individuals responsible for misconduct. If there is no company indemnity available then the D&O policy will be the only protection available to the individuals. The structure of a company’s D&O programme in terms of the limit available for loss and costs which is not indemnified by the company itself (i.e. Side A) will be increasingly relevant, including the purchase of Side A difference in conditions cover which is solely there to protect individuals.
being implicated in global investigations, JLT Specialty Limited The St Botolph Building 138 Houndsditch London EC3A 7AW
increasingly by multiple regulators as we see greater global cooperation between regulators across jurisdictions.
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This publication is for the benefit of clients and prospective clients of JLT Specialty Limited. It is not legal advice and is intended only to highlight general issues relating to its subject matter but does not necessarily deal with every aspect of the topic. If you intend to take any action or make any decision on the basis of the content of this bulletin, you should first seek specific professional advice.
