D & O liability dangers outside the U.S. borders: in foreign venues, individual risk can be amplified. Here are some questions for your chief risk officer.

• Author: Proferes, James H.
• Position: RISK MATTERS

AS A DIRECTOR, you are at greater risk of a foreign directors and officers (D & O) liability lawsuit today than ever before, and your financial exposure is growing.

The adoption of new laws by countries outside the United States, as well as more stringent corporate governance and increased regulatory activity, are creating an increasingly litigious multinational business environment. For example, when South Korea enacted the securities-related Class Action Act of Korea, the number of securities lawsuits filed increased from 18 cases in 2000 to 326 cases in 2004. Meanwhile, investors are reaching settlements in excess of $100 million in countries such as Canada, Australia and the Netherlands, where Royal Dutch Shell settled a securities lawsuit in 2007 with its European investors for about $450 million.

But the uptick in lawsuits and the promise of big payouts are only part of the reason for the growing threat of a foreign D & O lawsuit. At the same time that D & O liability risks are increasing, companies are rapidly expanding their operations outside their home country's borders.

The 2007 Chubb International Risk Survey of U.S.-based companies found that three in four companies surveyed plan to expand foreign operations or introduce new products outside the United States, two of three expect to hire more employees or open a new plant or office, and nearly half plan to acquire another company outside the U.S. In a recent survey by the Fulbright & Jaworski law firm, more than one-third of companies reported that up to 20 percent of their dockets originate in foreign venues.

As a result of these regulatory and economic changes, directors and officers are finding that they are now accountable to regulators on a global scale. This means that if your company has business operations outside your home country, you need to know how the company is managing your personal risk in the event of a foreign D & O liability lawsuit. Will the company's D & O liability insurance coverage function effectively if there is a lawsuit in those locations? If the D & O insurance policy does not perform as expected, it could have devastating implications for your personal risk.

Here's the critical thing to recognize: In this increasingly litigious international business environment, directors and officers want their D & O liability insurance to function effectively in a foreign jurisdiction. In foreign venues, individual risk can be amplified. In Brazil, for example...