The recent case of the NatWest Three has led to
confusion over the scope of D&O cover.

The furore caused by the extradition of three British bankers to the US has sparked a major debate on the extent to which directors' & officers' (D&O) policies cover the costs of defending and appealing extradition. Boardrooms are seeking confirmation on the circumstances that would constitute a valid claim. “Some of the confusion surrounding D&O liability stems from the wording in the policies not being clear in relation to extradition,” says Nick Foord-Kelcey, Marsh's European D&O practice leader.

According to Maria Ross, a lawyer at Norton Rose, D&O policies should, in principle, cover the costs of extradition defence, but she warns it is not a situation that is specifically worded. “It's down to interpretation, I think it would be covered but there might be ambiguity.”

Marsh is pushing for greater clarity in D&O policy wording to confirm whether cover will be provided for opposing extradition and offering a bail bond. In the case of the “NatWest Three”, the bankers, who were extradited through a fast-track system, have been told to stump up $1m or guarantees, or face jail. The trio are accused of advising their former employer, NatWest, to sell part of a company owned by collapsed energy giant Enron for less than it was worth.

In the same way D&O policy wordings became clearer on whether they would cover the costs of regulatory investigations, Foord-Kelcey is advising that policies become clearer on extradition. “It is important to be cautious, to take advice and consider amending or extending the D&O policy to achieve clarity,” he said. And it appears that his advice is being heeded. Ross explains she is currently looking at some new, and very recently revised, D&O policy wording where costs to fight an extradition order are explicitly covered. However, in this example, the costs that relate to extradition had a sub-limit of 20% of the total aggregate limit.