Environmental Risks: Stress test your D&O policies

Environmental Risks: Stress test your D&O policies

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Environmental Risks: Stress test your D&O policies

Directors and Officers (D&O) insurance for mining operators is important, as directors and officers of mining operators face exposure to criminal, civil, and regulatory risks.

Ongoing environmental risks pose a particular exposure for mining company executives. For example, they may be subject to both civil, regulatory, and criminal proceedings in the event of a claim alleging a wrongful act following bodily injury, death, and/or destruction of property resulting from disasters caused by either tailings or overburden.

D&O insurance, if structured properly, can provide robust protection in the event of follow-on claims or regulatory investigation; it does not, however, cover direct claims for cleanup costs, bodily injury, or property damage — these perils are covered under other insurances.

Carefully consider exclusionary language in D&O insurance. The breadth of terminology in some policies can mean that follow-on claims can be excluded as well as the direct claims (that would fall for cover under other insurances). The terminology can be minimised by limiting use or removing it, applying carve backs, or including of “for” language where appropriate.

Other policy language which might impact the ability to obtain full recovery in environmentally related D&O claims, if not removed or substantively reworked, includes:

  • “Insured” versus “insured exclusion”.
  • Other insurance clauses, particularly relevant where there are joint ventures and/or local policies.
  • Specific matters exclusion.
  • Tailings dam exclusion.

While there is the ability to tailor coverage to remove or limit the potential impact and application of such exclusions, terms, and conditions, the breadth of coverage available in relation to each individual risk will be dependent on multiple factors, including: the current market environment, recent claims activity within the industry, the individual company risk exposure, and individual insurer appetite.

The structure of the insurance program can potentially impact the availability of an indemnity for senior executives involved in follow-on claims or regulatory investigations. The total program limit and the availability of ring-fenced coverage for senior executives where the company cannot indemnify them or where the underlying insurance does not respond should also be carefully considered.

The resposnibility of individual directors and officers

It is the responsibility of the individual director or officer to stress-test the scope and suitability of new and existing D&O insurance cover.

For example:

  • Does cover extend to senior employees or consultants who are not statutory directors and/or officers?
  • Do I benefit from an individual indemnity limit or is it shared with all other directors and officers?
  • How will the policy respond to a claim involving allegations of fraud or dishonesty?
  • In the event of conflict between company and executive, can separate counsel be retained?
  • Can I notify an insurer of a claim or must it be the company?
  • If the company brings a claim against me, can I seek cover under the D&O policy?
  • What happens to my cover when I retire or if my company is sold?
  • How will the policy respond directly to proceedings against me in other jurisdictions?
  • Is the insurer able to subrogate against me?

Contact HDL for assistance

Contact HDL for further information.

The information provided in this article is of a general nature only and has been prepared without taking into account your individual objectives, financial situation or needs. If you require advice that is tailored to your specific business or individual circumstances, please contact HDL.

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