Recent trends in civil liability Law in Brazil will certainly challenge D&O Insurance coverages. Such fact is evident at least in two main areas: Tax and Corporate Laws.
In the tax area, federal and state Governments have improved mechanisms of challenging administrator’s decisions in order to deepen taxpayer’s pockets and bypass their refusal to pay. Disregarding of complex operations under alleged attempts of evasion – coupled with personal sanctions – has been used as a method of tax collection.
Two main groups of events highlight this reality.
Brazilian Federal Revenue Office (“RFB”) enacted interpretative and procedural regulations focusing on administrator’s personal liability. While Normative Ruling Nr. 1,862/2018 makes the tax assessment more flexible by providing Tax Agents with “redirecting tools” from companies to personals, the Normative Opinion Nr. 04/2018 enlarges the concept of joint liability derived from “common interest” in a corporate operation. Without changing Law itself, RFB exponentially increased its own firepower.
Towards the same direction, an eloquent case of businessmen arrested due to a US$ 10,000.00 State tax debt has hit the Brazilian Supreme Court (Habeas Corpus Nr. 399.109/SC). Desperate by the budgetary constraints, a Brazilian South State boosted its tax collection by resorting to the police force. While the company was charged for a consumption tax debt, its administrators were accused of the crime of misappropriation. Not managing to file a proper defence, they were arrested. The case mobilized Brazilian legal classes and led important jurists and tax attorneys to act before the Supreme Court through pro bono legal services.
Looking at the corporate area, the most relevant innovations are related to a “class arbitration” filed by minor investors against Brazilian Estate-Oil and Gas Corporation – Petrobras. Although class actions moved by foreign investors, mainly in the U.S., were already known – and already priced by D&O Insurance Companies –, there wasn’t yet any beaten path in Brazilian jurisdiction.
This innovative arbitration might become the first ever class action in Brazil, with significant impact to Petrobras since the amounts used as a reference by the plaintiffs are those the Company paid in the U.S. through an agreement with the Department of Justice (DoJ).
D&O coverages are designed to protect administrators held personal responsibility for management acts. Nevertheless, in the capital market context, the insurance policies are added by coverages to the company itself through the so-called “Side-C Coverage” or just “C-Coverage”. Brazilian C-coverage already sold by insurance companies have surely not counted on collective impacts such as those described above.
Considering such scenarios, it’s evident that tax, criminal, side-C and fine D&O coverages must be revisited during the policies underwriting process. Both the insured and the insurance company must be aware of the innovations mentioned above. The insured, to be sure that a loss in such areas will be properly covered, and the Insurer, in order to monitor and price accurately the risks it takes.
Lots of work for the insurance advisors ahead.