Enron ruling raises stakes for directors and officers insurance

This week, three Natwest executives appealed against a decision by the Home Secretary to allow their extradition after it was alleged they conspired with former Enron executives to defraud their employer over the sale of a stake held by Natwest in an Enron entity in 2000. The High Court rejected their appeal.

The ruling may mean an increased risk in exposure to executives of UK companies with involvement in alleged white collar crime, where a prosecutor in the US takes an interest.

Alexis Roberts, Partner in the Insurance and Reinsurance Group at Pinsent Masons, the law firm behind OUT-LAW.COM, said:

"D&O insurance policies often exclude losses stemming from fraud, dishonesty, criminal activity or deliberate wrongful acts. However, the costs of defending these types of proceedings are frequently covered. Insurers could find themselves having to pick up the costs of resisting extradition proceedings in the UK and then also the costs of defending criminal proceedings in the US if extradition is ultimately granted."

Toby Thompson, Solicitor at Pinsent Masons added:

"Similarly, companies that have purchased Directors and Officers cover need to be aware of the increased risk that their executives may find themselves the subject of a US extradition request even if none of their business activities take place on US soil. If a policy specifically excludes liabilities relating to the US, and a company conducting no business there would not ordinarily see such a restriction of cover as problematic, it may be that the policy will not respond at all.

"The fundamental message is that the long arm of the US law in relation to white collar crime is longer than most people would have thought. Both D&O underwriters and insureds should be alive to this increased risk."