1. AIDA France Climate Change Working Party
The VW Scandal watched with D&o Spectacles By
Dr Adolfo Paolini
University of Buckingham UK and DACBeachcroft LLP
Paris, December 2nd 2015

2. Volkswagen wrote to me

3. D&O Main Features
Developed to protect Directors and Officers and not the Company
Liability Insurance: Professional Indemnity Insurance/Third Party Insurance
Liability must be established to trigger substantive cover
Claims Made Policies
D&O does not cover wilful misconduct/fraud
D&O does cover regulatory investigations
Types: Side A , Side B and Side C
Pollution is often excluded

4. Uncontested Facts
11/09/2015 VW made public a statement highlighting how prosperous and environmentally friendly VW was. ‘world’s most sustainable automotive group’
Investors had purchased American Depository Receipts (ADR’s) in US/ share price lost more than a third of its value
18/09/15 US Environmental Protection Agency served a notice of VW
VW faces billions of Dollars in fines: $ per vehicle/VW set aside $ 7 Billion / Almost 0.5 million cars affected in US and 11 million worldwide.

5. Uncontested Facts
25/09/15 Germany disclosed that 2.8 million cars have been affected and VW supervisory board has instructed lawyers both in US and Germany to investigate the case
VW admitted liability for the use of ‘defeat devices’ to rig the emissions test/software to circumvent EPA
VW senior officers denied liability and/or knowledge of misconduct

6. Volkswagen Scenarios
Company’s Liability for breaching anti-pollution rules
Directors’ Liability to the Company for breach of directors’ duties
Class Actions against VW by consumers
Class Actions against VW by company shareholders/investors
Attempted actions against directors by third parties
Attempted actions against directors by Environmental Agencies
Regulatory Investigations
Defence Costs Cover

7. German Scenario and D&O Implications
German Two tier system: Supervisory and Executive Board
1. Stock Corporation Act s 111: supervisory board brings the claim, on behalf of the company, against the executive board and/or management board s 93(4)(3)
2. Shareholders could pass a resolution and force the supervisory board to proceed s 147
3. Shareholders have also the statutory derivative action/1% of the shareholding or Euro nominal value. Leave of court is required/ suspicion of dishonesty/must be beneficial for the company/ shares must be acquired before the issue arises
3.1 Shareholders bear the cost/ claim it back if successful
3.2 unfounded actions/shareholders do not recoup costs

8. German Scenario and D&O Implications
D&O policies ( as any other form of insurance) exclude fraud and /or wilful misconduct/ liability must be ascertained before the exclusion applies
Company’s admission of liability may not affect innocent directors/composite insurance policy/severability
Two tier system and potential conflict of interest/insured v insured (less used these days)/policy wording/policy limits
Insurer choice to defend or settle out of court/ duty to defend and indemnify
Bentham Europe Ltd: shareholder action litigation financing for breach of Securities Trading Act

9. German Scenario and D&O Implications
Defence Costs?
Who bears that defence costs?/Policy Wording/
Hendricks and Fassback (Howden Broking Group) proposal:
twin model tower/different limits of indemnity/supervisory and executive board
Two towers with different limits of indemnity/like excess policies
Third party notice to the SB triggers liability.

10. The UK Strategy One tier system/executive and non-executive directors
Directors duties owed to the company/breach of duty
Minority Shareholders derivative action
The strategy;
Rules of Attribution/directors’ misconduct attributed to the company
Jetivia v Bilta effect
Safeway v Twigger/ competition rules/ illegality/ effect

11. Could Directors be personally Liable to third parties?
Northstar Aerospace v Ministry of Environment Ontario Canada [2012]
The company knew about the polluting agent and did its best to clean the site.
The Company run out of cash to continue to clean the site and became insolvent.
Directors did not act maliciously or negligently
Directors and Officers were held personally liable to fund the cleaning up cost of company’s site.
D&O’s agree to pay up to 4.5 Can $ and the dispute was settled
D&O Insurance policy excluded pollution.

12. Conclusions Directors personal liability Side C cover/policy limits
Pollution exclusion
Defence costs cover
German Two tier system
UK potential exposures

13. Thank You