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Regulatory scrutiny heats up for executive risks


NEW YORK — At least one company will be used to set an example as the U.S. Department of Justice pursues individual wrongdoers working for corporations, while the outlook for future Equal Employment Opportunity Commission activity could rest with the next administration.

These are among the regulatory developments that professional liability and directors and officers liability experts predict companies will face.

An expansion in directors and officers policies could also mean the market may be headed toward separate policies that separately indemnify corporate entities and individual directors and officers.

The concern over individual corporate wrongdoers can be traced to a September memo from Deputy Attorney General Sally Quillian Yates that called on federal prosecutors to hold individuals more accountable and requires firms to turn over information about culpable individuals in return for credit for their assists in a probe.

Speakers at the Professional Liability Insurance Society's 2016 D&O Symposium in New York discussed the memo's implications earlier this month.

It can be anticipated the Yates memo will lead to an uptick in defense costs for firms, said R. Damien Brew, New York-based managing director at Marsh USA Inc.'s FINPRO unit. “It's a big issue, and one we will look at closely,” said Mr. Brew.

Furthermore, “at some point, it seems likely” someone will be made an example of under the Yates memo and “there will be some type of example made for directors and officers,” Mr. Brew said.

Also speaking at the session was Daniel Stein, New York-based chief of the criminal division of the U.S. attorney's office for the Southern District of New York, who said the New York office's investigations have always focused on the individual, and the Yates memo may have been directed at other U.S. attorneys' offices around the country.

Stephanie Avakian, Washington-based deputy director of enforcement for the U.S. Securities and Exchange Commission, said the Yates memo “has not really changed anything for us. We've always focused on individual liability and will continue to do so.”

Mr. Stein said his office will continue to focus on securities violations. In addition, the U.S. attorney's office in New York is increasingly seeing cases involving cyber crime, where companies are being victimized through phishing and hacking attacks.

“We're seeing a real explosion in that area,” including cases involving companies that respond to forged email accounts, where they are instructed to send funds to a vendor's allegedly changed bank account, Mr. Stein said.

Ms. Avakian said in addition to the issues cited by Mr. Stein, financial fraud “continues to be a very important focus for us.”

Regarding employment liability issues, the EEOC has placed “a lot of focus on employment issues” under the Obama administration, said Eric J. Marler, Itasca, Illinois-based assistant vice president for management liability claims at The Hanover Insurance Group Inc., during another session on private and nonprofit D&O coverage.

“It's going to be really interesting in the next election cycle to see if that mandate continues, or if there's some pullback,” he said.

Maura D. Verrone, Atlanta-based vice president at Berkshire Hathaway Specialty Insurance Co., pointed to an EEOC proposal that the agency start collecting pay data from employers with more than 100 workers.

“There's been so much about disparate compensation between men and women, you wonder if that's going to be very apparent” as an issue in 2017, she said.

Speakers at the conference also suggested the insurance market may be headed for separate policies for directors and officers and corporate entities.

There is a trend toward expansion of coverage under D&O policies, including providing corporate entity coverage, said Kevin LaCroix, executive vice president of RT ProExec, a division of R-T Specialty L.L.C.

While expansion is good, policyholders should be sure to understand this means there may not be adequate coverage for individuals when a crisis hits, Mr. LaCroix said during a session on coverage issues.

As the push toward corporate coverage continues, there is a chance, if the pressure continues to build, “that you'll see a split” in the purchasing of the coverage, and “it will be more and more logical to create a new D&O tower” for corporate entities, said Tony Galban, Warren, New Jersey-based senior vice president and global D&O product manager for Chubb Specialty, a unit of Chubb Ltd., during a session on D&O innovation.

There were about 1,100 attendees at this year's PLUS D&O symposium. Next year's event is scheduled for Feb. 8 and 9, in New York.