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D&O Liability Insurance Policy – Coverage for investigation costs

With the empowerment of different agencies under various laws to investigate and prosecute offenders, investigations against corporates are becoming increasingly common now a days. Wading through the mine field of the increasingly stringent regulatory environment is adding pressure to the corporate managements. Matters including everything from tax audits, allegation of corruption, delays in payments, securities inquiries to administrative, labour, and environmental issues are turning into investigations at a higher frequency.

India has a number of regulatory authorities which have been empowered by various laws to investigate and prosecute the accused. The grounds for initiating investigation against a wrong-doer are usually mentioned in the relevant statutes.

Some of the important regulatory authorities in India include Securities and Exchange Board of India, Reserve Bank of India, Central Bureau of Investigation, Serious Fraud Investigation Office, Central Vigilance Commission, Enforcement Directorate and the Income Tax department. As regards investigation of companies with global exposure, US Foreign Corrupt Practices Act 1977 and The UK Bribery Act are too well known for any further mentioning.

Investigations cost a lot of money besides being time consuming and reputation harming. Some of the leading Indian lawyers are known to charge approximately Rs. 30 lacs ( About 44000 USD) per day in addition to other expenses. Corporate legal expenses are ballooning and this is a well-known fact. It becomes more daunting when cross border investigations are involved. Please refer to the following in The Practitioner’s Guide to Global Investigations to understand some of the complex issues involved.


“Does double jeopardy, or a similar concept, apply to prevent a corporation from facing criminal exposure in your country after it resolves charges on the same core set of facts in another country?”

“Article 20 of the Constitution of India provides protection against double jeopardy. The doctrine of double jeopardy protects a person from being tried and punished twice for the same offence, but not from different offences arising out of violation of different laws by the same set of facts.

However, a corporation facing criminal exposure in India after it resolves charges on the same core set of facts in another country may not avail itself of protection against double jeopardy. For example, in the Louis Berger case, having been prosecuted in the US, the company and its executives are still being investigated in India.”



When investigation is ordered against directors and officers of a corporate body, it is but necessary for them to defend themselves. Coverage for investigation costs under a Directors &Officers (D&O) liability insurance policy, assumes significance in this context.

Investigation costs that are a necessary part of defending a director or officer who is sued are covered under D&O policies, subject of course to the insurer’s consent that such costs are reasonable and necessary for a proper defence of covered allegations. On the the specifics of coverage, it may vary from insurer to insurer: in terms of scope, breadth and language. Some may be wider than the others. Some may be more explicit than others. It is here that Insured needs to pay specific attention to the following, apart from other issues.

Detaching coverage for investigation costs from wrongful act: D&O policies provide for indemnification of costs relating to an investigation for a wrongful act. In this case, when an investigation is launched, unless the concerned investigating agency refers to some specific allegation of a wrongful act, coverage is denied for the claim. So, it is necessary to get the coverage detached from reference to wrongful act with regard to investigation costs.

Coverage for pre-investigation costs: Pre investigation exercises do pose challenges. But, well-handled these can bring the matter to a close quickly. Pre-investigation may involve engaging lawyers, generating documents and reviewing them. Some D&O policies do not provide coverage for any cost that an insured incurs prior to a formal investigation. Hence, it is advisable to obtain explicit coverage for pre-investigation costs. Sometimes, when there are very strong grounds, it may be apt to even challenge investigation. Recently, Hon’ble Bombay High Court in the case of Parmeshwar Das Agarwal and Others vs. Additional Director (Investigation) SFIO, Ministry of Corporate Affairs and Another has held that reasons for investigating the affairs of a company have to be at least prima facie demonstrable where an order for investigation has been ordered by the Central Government.

Advance payment of defence costs: It is better to seek the facility which provides for payment prior to the final disposition of any claim on as and when incurred basis. Insurers are open to offer this provision without much of a problem.

Unscrupulous conduct – Final adjudication: D&O policies are subject to Unscrupulous / Fraudulent / Dishonest conduct exclusion. In simple words it means that the policy would pay for only negligent acts and not for unscrupulous / fraudulent / dishonest / malicious acts.

While investigations are ordered on the allegation of unscrupulous behaviour of the accused, the allegations may not always be proved and finally the accused may be acquitted. Therefore, it is necessary that coverage is obtained on “Final adjudication” basis with regard to unscrupulous conduct exclusion.The way to get better protection here is to obtain coverage which makes reference only to “final adjudication” and not to admission of wrong doing by insured person. Further, the exclusion should get triggered by a “final adjudication,” or a “judgment after the exhaustion of all appeals,” and not merely on the basis of a “judgment by any court”.

As regards issue of a D&O policy and extensions there under, Insurers would like to grant them on review of the profile and governance practices of the insured and other relevant factors. It is in the interest of insureds to have in place best corporate governance practices and ensure their implementation in letter and spirit.

P. Umesh


Disclaimer: The information contained and ideas expressed in this article represent only a general overview of subject covered. It is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. Insurance buyers should consult their insurance and legal advisers regarding specific coverage and/or legal issues.