In your interest.
Online Personal Finance Magazine
No beating about the bush.
A third sexual harassment case against Phaneesh Murthy’s should wake up the corporate sector to insurance for Directors and Officers that also covers liability due to financial misstatements, sexual harassment and vulnerability to stakeholder claims, but Indians companies seem to be slow in getting such protection
Phaneesh Murthy, president and CEO of iGate was sacked yesterday for alleged sexual harassment. A statement by iGate innocuously says that Murthy was sacked for not disclosing his relationship with a subordinate Araceli Roiz who is global head of investor relations. Earlier, Murthy was given boot by Infosys over a sexual harassment scandal. When Infosys decided to settle with its former employee Reka Maximovitch at $3 million plus nearly $1 million more in costs, more than half the money came from its insurance company. Infosys paid $1.5 million and Phaneesh Murthy, the accused, paid nothing. Jennifer Griffith, another Infosys employee in the US also alleged that Murthy had sexually harassed her. Even though Murthy had denied it, the suit was settled for $800,000.
All this has thrown light on the issue of liability for Director and Officers and insurance cover for them.
While the chances of litigation are definitely higher in the US than in India, exposure to scams and global practices should be pushing corporates to buy Directors and Officers (D&O) insurance to cover their risks. With examples like the Satyam scam, the sexual harassment in Infosys and now possibility of the iGate lawsuit with news of Phaneesh Murthy’s alleged sexual harassment incident, there are good reasons for Indian companies to rethink. Companies with overseas operations will surely buy it due to litigious environment in overseas jurisdictions and the prohibitive legal costs abroad.
Some of the main areas of D&O coverage is as follows –
• Mis-statement in prospectus
• Inaccurate statement of financial conditions
• Errors in annual accounts
• Conflict of interest
• Lack of judgment, diligence, good faith
• Mismanagement of funds
• Unfair allotment of shares
• Using insider information
• Unwarranted dividend, salary, compensation payments
• Unfair dismissal of an employee
Some policies may be silent about covering lawsuits due to sexual harassment and hence buyers need to be aware of it. Each policy is usually tailored for the respective clients and hence the clause can be added. Moneylife had written to five private insurers to confirm if sexual harassment is covered in their policy, but got response from only two. According to Dr Amarnath Ananthanarayanan, CEO and MD, Bharti AXA General Insurance, “Yes, the D&O policy would trigger on such lawsuits being filed.”
According to Mukesh Kumar, Head - Strategy Planning, HR and Marketing, HDFC ERGO, “Our D&O policy covers directors, officers and employees against claims with respect to any actual or alleged wrongful or unfair employment practices. This broadly includes but is not limited to termination of employment, misrepresentation, discrimination, harassment, sexual harassment, failure to employ or promote, demotion, invasion of privacy, defamation or infliction of emotional distress.”
The demand for D&O policies in India is increasing with listing of Indian companies on international stock exchanges. There had been talks about the Securities and Exchange Board of India (SEBI) making it mandatory for all listed companies to buy D&O insurance, but only 10% of publicly listed companies in India have D&O insurance. The main buyers of D&O cover are companies listed or planning to list on the Nasdaq and those in IT. Even with the increased awareness of D&O, the biggest manufacturing companies and blue chip corporate groups continue to be complacent about directors’ risks.
According to Dr Amarnath Ananthanarayanan, “The response has not been good, but the trend is increasing as more awareness is spreading in the market. The awareness is still very low in the SME segment as opposed to the larger corporates. We would approximately have 20 such covers for private sector companies. This is not necessarily companies that have overseas operations or plan to list on foreign stock exchanges. But, there is obviously more inclination for companies listed abroad or planning to list abroad to buy these covers.”
Mukesh Kumar, says, “In the last couple of years, we have seen a growing demand for D&O insurance cover from Indian companies and there has been a transition from concept selling to general awareness. Stringent regulations, complex listing requirements, increasing legal fees and litigious environment have contributed towards an increasing demand for this policy. Our D&O book mostly includes private companies. However, there are some large public sector companies as well.”
It is possible that Indian companies consider D&O cover as a cost rather than an investment as well as belief that Indian environment is less litigious than the western countries. Dr Amarnath Ananthanarayanan, says, “We receive requests for policy indemnity limit from $1 million to $50 million and the price varies depending on the circumstances and client type. At a very high level of approximately a $1 million of cover, the annual premium would be $2,000 for a private limited company.”
According to Mukesh Kumar, “Typically Indian multinationals, listed companies and companies that plan to list their securities on stock exchanges buy D&O insurance. We have also seen an increasing demand for this policy from companies which are planning acquisitions/mergers or capital raising via the private equity route. The D&O market is very soft at the moment and the premiums tend to be very competitive.”
Tata AIG D&O insurance may have come handy for Satyam Computer Services with the Rs7,000 crore scandal. Even though confession to fraud is considered as an exclusion from the D&O policy, media reports last year state that D&O liability cover requires the insurer to defend till such time that the officer is criminally convicted. It adds that Tata AIG had to foot Satyam founder Ramalinga Raju’s legal bill of Rs60 crore. When Moneylife contacted Tata AIG to find about the case, they stated that Tata AIG policy is not to talk about their clients or even confirm that a specific company is their client.
Insurers make you go through medical tests when you buy an online term plan. Apart from nasty surprises of premium escalation, you may be even denied the medical report. Avoid an insurance company that refuses to share the medical reports. You will need them for your records
Moneylife Insurance Helpline received the following email from Uttam Kumar Dubey. “I am 31 years old. I went for Rs80 lakh term plan after cancelling the Rs75 lakh HDFC Life click2protect term plan (30 years/Rs11,000 premium) under the condition that they will conduct a complete health check-up. In the hospital we went through several tests, but only the urine cotinine test details were available on HDFC Life website. When I asked them why all details were not available, the manager said only urine cotinine test was required and they did not collect all reports from the hospital. There was no change in premium after medicals, but I should have got all the reports.”
While the customer deserves to get all the medical reports, self declaration of the customer is as important. This is because doing medical tests is not a replacement to self declaration. There will be only a limited number of tests and it cannot catch everything that is wrong with your health. So, having done medical tests is not a conclusive proof of utmost good faith in case of death claim dispute. It surely supports your case and hence it is best to keep all the records of your medical tests.
Here is the response from HDFC Life—“We keep revising our non-medical limits from time to time based on actual experience. Most of the times, we revise the non-medical limits and give the benefit of the revised limits to the proposals, which are pending for conversion. We had changed the non-medical limits just when Mr Dubey went for the medical examination. The centre had collected the samples and done the reports.
However, as we had informed them of the revision in the non-medical limits, they only forwarded the cotinine test report to us, on the basis of which we went ahead and converted the proposal. As the cotinine test was the only medical test required for the conversion of Mr Dubey's policy because of the revision in non-medical limits, so we had uploaded only that report. On receipt of the complaint, we have checked with the centre and they could produce the other reports which they had retained at their end. We have now uploaded all the reports, which Mr Dubey can view at his end.”
Mr Dubey was ecstatic to get his reports and the issue was solved. But, we have come across examples of customers being denied medical reports, premium escalated after medicals without sharing the medical results, inaccurate medical reports leading to premium increase, rechecking needed if there is discrepancy between insurance company reports and your reports that were recently done and many other issues.
Escalation in premium should be justified with medical reports otherwise customers will question if the premium declared by online term plans are just for enticing customers. You can write to Moneylife Insurance Helpline for your insurance issues.
Read - Online term plans
Insurance regulator, IRDA, has cleared policies with higher premium rates issued by New India Assurance; it is expected that this will become a trend soon. New India Assurance recently issued policies with rates that are 20% higher than the older ones in force since 2007. For renewal policies, the revision would take comparatively longer since insurers need to give a three-month notice.