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Airmic workshop

Airmic workshop . Mark Bailey, Financial Lines Claims Manager Alastair Burns, Banks and D&O Claims Manager ACE. D&o case study. Andrew McGahey , Partner Gillian Sproul, Partner Mayer Brown. Boring Plc. Boring Plc.

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Airmic workshop

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  1. Airmic workshop Mark Bailey, Financial Lines Claims ManagerAlastair Burns, Banks and D&O Claims Manager ACE D&o case study Andrew McGahey, Partner Gillian Sproul, Partner Mayer Brown

  2. Boring Plc

  3. Boring Plc • One of the leading construction companies specialising in road & tunnel construction projects for both the private & public sectors. • Boring plc is headquartered in UK with public listings on LSE & NYSE • Has a regional network of subsidiary companies, each registered in local country of operation / region • US (Delaware) - Canada (Toronto) - India (Mumbai) - Europe (UK) – Russia (Moscow) - Australasia (Melbourne) - China (Shanghai) - Japan (Tokyo) • Each regional subsidiary’s board is comprised of a combination of local and main board members

  4. Insurance cover

  5. Insurance cover • D&O multinational policy with master in UK & local policies for: • India, Russia, Japan, China • Includes security entity cover • Master policy contains full DIC/DIL • Tie-in of limits between master and local policies • $25m primary - $500k retention for US entity cover • Pre-investigation costs cover, sub-limited to $1m • Definition of insured includes employees when named alongside directors • Fines and penalties covered where insurable

  6. The incident

  7. The incident • Whistle blower reports suspicion of anti-competitive practices in the insured’s UK subsidiary, Boring Junior Ltd, and possibly others, comprising bid rigging in relation to tender processes for public and private sector road projects in the UK. • Boring plc commences its own investigation of the UK subsidiary, including formal interviews of the Procurement Manager, Projects Manager & Head of Marketing amongst a number of other employees. • The internal investigation discloses a system of contacts between Boring Junior’s procurement staff and the procurement staff of its main competitors to allocate the winning bidder for each project. • Boring plc decides not to inform or apply for leniency from any competition authority, but another company informs the UK’s Competition & Markets Authority (CMA) of the anti-competitive practices.

  8. The incident • A series of dawn raids are carried out by the CMA across Boring’s UK offices and a number of documents are seized pertaining to a number of projects. • One law firm, Grabbit & Co, is retained to advise Boring. • The CMA decides to launch criminal investigations against 4 of Boring’s UK directors and 3 key managers, who are requested by the CMA to attend formal interviews. • Managers retain Grabbit & Co (the firm already appointed by Boring) to represent their individual interests. • 2 of the UK directors retain separate law firms to represent their interests. The other 2 directors retain the same law firm.

  9. The incident • During the course of its investigation, the CMA identifies references to similar activities in other jurisdictions and report to the relevant authorities in: China – India – Japan - US • As a result a number of spur investigations are commenced with further dawn raids in those countries. • The CMA co-ordinates & liaises with the other authorities in those countries. • A further 7 directors are identified for interview across the Boring global network by the relevant local authorities 3 in China - 2 in Japan - 2 in US • Each of the 7 directors retains separate legal representation

  10. Outcome of investigation

  11. Outcome of investigations • Fines are levied against Boring following civil investigations in a number of countries: • $500M in US • 300M Yuen in China • JPY 250M in Japan • £85M in UK • Criminal proceedings for the cartel offence are commenced in UK by the CMA against 3 of the 4 UK directors under investigation. • UK disqualification proceedings are brought by the Secretary of State against 3 of the UK directors.

  12. Outcome of investigations • Criminal proceedings are commenced in US against the two US directors, one of whom is based in the UK against whom extradition proceedings are commenced by the US Department of Justice • Boring plc’s share price drops by 65% as a result of news breaking concerning the investigations, resultant fines and the commencement of criminal proceedings • A US Securities Class Action is commenced in New York Federal Court naming the Company and 5 directors

  13. Dawn raids

  14. Dawn raids: be prepared • How should a company respond to a dawn raid? • Invoke crisis contingency plan: what might this look like? • Identify a co-ordinator • Identify appropriate Legal Counsel to co-ordinate for entity • Consider the need for an external crisis management consultant • Consider media relations (take care to manage any announcements)

  15. Dawn raids: be prepared • Inform employees • Take action to preserve all information: remove the shredder and secure electronic information • Notify insurer • Co-operate with the authorities • Be alive to discoverability and privilege

  16. How to choose and manage your defence team?

  17. How do you choose & manage your defence team? • How do you go about appointing appropriate defence counsel for the company and individuals? • Managing conflicts • What legal experience do you need – litigation, regulatory, international? • How do you control & coordinate the legal team across the various jurisdictions - what structure should be in place? • Who will coordinate counsel and monitor costs across the various law firms and jurisdictions? Company vs individuals Individuals vs individuals Internal vs external directors

  18. What is your insurer’s role?

  19. What is your insurer’s role? CLIENT SUPPORT FINANCIAL • Buffer for personal estate of directors • Reimbursement of costs indemnified by company • Director will come first but how can we manage competing interests for policy limits? STRATEGIC • Peace of mind • Application of broader experience • Formation of team approach

  20. What might be covered? • Pre-investigation costs for legal representation of directors/managers in Boring Junior Ltd (sub-limit £1M) • Legal costs of individuals attending and preparing for formal interviews by the CMA • Legal costs of individuals under investigation in China, Japan and the US (note operation of master vs local policies for China & Japan and how that is co-ordinated) • Legal costs of the directors defending the CMA’s criminal proceedings for cartel offence • Legal costs of UK director defending US extradition proceedings • Defence costs for the 3 directors involved in UK disqualification proceedings • Cover for both Boring & the 5 directors named in US Securities Class Actions (defence & settlement)

  21. What/who might not be covered? • Note, no cover for fines or penalties levied against the Company • Need to allocate defence costs where entity & individuals are represented by the same firm in the CMA’s cartel investigation • Intentional Conduct exclusion may apply in the event of a criminal judgment in the UK and / or judgment of dishonest conduct in US or UK civil proceedings • Policy validity issues might arise if it was identified that any of directors were aware of the anti-competitive practice at the time of renewal or taking out the policy. Severability clause will protect innocent directors

  22. Monitoring counsel: their role

  23. Monitoring counsel: their role • Cost to ACE, not the company or its directors • Have a “bird’s eye” view of the investigations across the various jurisdictions. • Role is to: (i) Maintain a watching brief on the various investigations and proceedings (ii) Help the defences run smoothly and efficiently (iii) Liaise with the various defence teams on: defence strategies costs budgets and invoicing settlement proposals

  24. Monitoring counsel: their role • Keep an eye out on the erosion of the limit of indemnity by investigation or defence costs – there is only one shared limit! • Advise ACE, the company and the insuredson the reasonableness of the costs being incurred • Keep the policy coverage position under review. E.g. • Does the conduct exclusion apply? • What is an appropriate allocation of defence costs between a company and a director represented by the same firm?

  25. Conclusion

  26. Conclusion One team • Communication and coordination are key to managing effectively the situation • Joined up approach, creating one team • Agree roles and reporting structure • Establish a process for settling invoices • Avoid surprises

  27. How to contact us Mark Bailey, Financial Lines Claims Manager 0207 173 or mark.bailey@acegroup.com Alastair Burns, Banks and D&O Claims Manager 020 7173 7221 or alastair.burns@acegroup.com Andrew McGahey, Partner 0207 398 4688 or amcgahey@mayerbrown.com Gillian Sproul, Partner 020 3130 3313 or gsproul@mayerbrown.com

  28. Contact us 201 Bishopsgate London EC2M 3AF 020 3130 3000 www.mayerbrown.com london@mayerbrown.com 100 Leadenhall Street London EC3A 3BP 0207 173 7000 www.acegroup.com/uk aceuk@acegroup.com

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