• Investment World
• eWorld
• Brand Line
• Mentor
• Life
• Brand Quest
• The New Manager
• BL Club
• Smartbuy
• Books

Stocks

• Quotes
• SE Diary
• Scoreboard
• Open-End Mutual Fund

Cross Currency

• Rates
  
  

Shipping

• Ports
  
  

Archives

• Yesterday
• Datewise
• Resources
• In Focus
• In Depth
• Events 2007

Group Sites

• The Hindu
• The Hindu ePaper
• Business Line
• Business Line ePaper
• Sportstar
• Frontline
• The Hindu eBooks
• The Hindu Images

C. Shivkumar

Bangalore, Jan. 8 Public sector New India Assurance Company Ltd (NIACL) and private sector Tata AIG General Insurance Company Ltd are unlikely to meet the liability claims from legal action against Satyam Computers for financial deception.

Legal action has already been started against Satyam. US investors in Satyam’s American Depository Shares have already filed two class action suits, outraged by the Chairman, Mr Ramalinga Raju’s disclosures.

Sources said that Satyam had Directors and Officers (D&O) Liability cover from NIACL, with Tata AIG as the co-insurance partner. The sources said that the sum assured for the entire cover was $150 million.

D&O is an indemnity cover, providing protection against a battery of corporate actions. This insurance provides corporate executives indemnity against legal action. These covers are fully backed by reinsurance, mostly through treaty arrangements, with both the national reinsurer General Insurance Corporation, and a clutch of cross border reinsurers.

Corporates listed in the country and overseas are currently obliged to take this cover, as a protection against legal liabilities. In addition, some unlisted corporates, with cross-border exposures, have also taken similar liability covers for protection against potential legal actions.

Corporates in India had begun taking the D&O cover since 2005. In December 2005, stock exchanges in the country had imposed Clause 49 of the listing agreement on corporates, which sets corporate governance and accountability standards.

But the sources said given the nature of circumstances involved in the Satyam episode, insurers had a defence against meeting the liability claims. The sources said that all D&O risks had riders built into them, in the form mis-declaration or non-declaration of material facts.

The sources said insurers were most likely to take protection behind these riders. The riders provide for complete disclosure of all material risks in the business environment to the insurers involved in providing the risk cover.

But Optima Risk Management Chief Executive Officer, Mr Rahul Agarwal, said, “Insurers have the exit option from the liabilities only if there is conclusive proof of illegal activity. Even so, only those officials directly implicated can be excluded from the cover.”

However, the major worry was not on account of the Satyam claims, they said. Claim events of this kind, the source said, would have wide ramifications. Such an event would lead to enhanced risk perception of Indian corporates, leading to big escalation in reinsurance premiums.

More Stories on : Courts/Legal Issues | Corporate Governance | General Insurance | Satyam Computer Services Ltd

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Copyright © 2009, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line