The VW emissions scandal makes niche insurance cover popular again

by Stavros Tsihlis / Insurance & Investment Advisor – One of the most discussed and least understood insurance products is Directors & Officers Liability (D&O) insurance. Market watchers note that even some lawyers have their problems comprehending what kind of coverage the insured managers have.

In simple words, D&O insurance is taken out by companies to cover claims against senior executives for the decisions and actions they take as part of their management duties.

This market has grown rapidly over the last 30 years and especially since the late 1980s when it spread from the US to other markets. Worldwide today, it commands roughly $10 billion in gross written premiums, and headlines are full of stories about “mega claims” of several billions of dollars along with more and less informed commentaries discussing the principles of this kind of insurance cover.

Insurance industry insiders now say D&O insurance is likely to see the biggest damage claims stemming from an unfolding scandal around Volkswagen’s rigging of U.S. emissions tests that prompted the German car maker’s chief to resign last month.

The German car manufacturer has at least 450 million euros of directors and officers coverage, according to insurance industry sources. 8 insurers participate, among which are big names such as Zurich Insurance Group, AXA and AIG.

Insurers would be off the hook for costs related to any recall of the cars affected, said Richard Leedham, partner at London city law firm Mishcon de Reya. “Given their apparent internal knowledge, it seems unlikely that VW will be able to claim any insurance for product recall or for product liability cover, so they won’t be able to pass on their losses,’ he said.

Siemens had a similar case 5 years ago involving corruption, having approximately 250 million Euros worth of D&O cover, but in the end reached an agreement with its insurers, on a claim of 100 million euros.

Due to the VW case, the D&O sector is seeing great demand these days, as companies realize that potential losses could be enormous, even resulting in bankruptcy.



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