Elon Musk: Always A Douche

[The Minsky Moment]

Wait corporate executives can be held liable for something? We have seen them tank the entire world economy through criminal incompetence and nothing at all happen to them but them get richer.

Civil liability, yes, for breach of the duty of loyalty.  But usually, the insurance company pays.

[HVC]

Insurance companies cover malfeasance? That seems like a weird policy

[The Minsky Moment]

Insurance companies cover malfeasance? That seems like a weird policy

Technically, they usually exclude deliberate fraud.

However, fraud has to be proven, and until that happens, they have to front the legal expenses.  Since most cases settle before trial with neither side admitting liability, the carrier usually is on the hook.

[HVC]

Given insurance thrives on denying coverage you'd think they'd come up with a loophole by now. Like settling voids the insurance. Sure, you drive up the legal fees, but you don't have to pay if they lose so you'd recover those, wouldn't you?

[Sheilbh]

Insurance companies cover malfeasance? That seems like a weird policy

This is actually a huge uncertainty in my area of law - of whether you can insure or effectively claim for a regulatory fine. Basically no-one knows or it's very grey - some regulators expressly forbid it, but also the fining regimes of say the financial regulator are very different than competition and some indicate more "malfeasance" while others are stricter and don't really care about intent.

[HVC]

I get how the liability for fraud can be in a grey area (fraud vs incompetence, for example) but being able to be insured against regulatory fines seems like a bad idea. Diminishes the power of fines.

[Jacob]

Seen on social media:

If Ukraine really did attack Twitter, I think the only logical thing is for Elon to sign a cease fire immediately, give them half of Twitter and make sure he says thank you."

[The Minsky Moment]

Given insurance thrives on denying coverage you'd think they'd come up with a loophole by now. Like settling voids the insurance. Sure, you drive up the legal fees, but you don't have to pay if they lose so you'd recover those, wouldn't you?

The corporate market is a little different.  It's hard to sell securities claims coverage if you acquire a reputation for always denying securities claims. That reputation does spread and big coverage disputes tend to get litigated. So instead carriers protect themselves through coverage limits and spreading the business.

What often happens in particular cases is that if there are fraud-like allegations the carrier will send an initial letter raising the issues and deferring a coverage decision.  Then there are letters back and forth at which point the carrier agrees to front defense costs while reserving its rights.  Ultimately if the case can settle reasonably, the carrier will step up and not press its coverage position and thereby risk blowing up the settlement. 

[crazy canuck]

Seen on social media:

If Ukraine really did attack Twitter, I think the only logical thing is for Elon to sign a cease fire immediately, give them half of Twitter and make sure he says thank you."

 

[Neil]

That sounds like a crazy business to be in, since anyone buying insurance against regulatory action is guilty.  It's like selling life insurance in a terminal cancer ward.

[Sheilbh]

I get how the liability for fraud can be in a grey area (fraud vs incompetence, for example) but being able to be insured against regulatory fines seems like a bad idea. Diminishes the power of fines.

Yeah it varies by sector/regulator. So the Financial Conduct Authority explicitly ban it - but it's unclear if, say, it would be banned for certain breaches of consumer or data protection law - obvious difference here is there's a very high bar to being regulated by the FCA and will be able to get an abundance of legal advice and  a very, very low bar to being in scope of consumer or DP law including very small businesses or charities who may not have specialist legal (or security) advice.

FWIW for this reason some of the regulators have explicitly said they're not taking a position.

As ever, Lord Bingham as a quotable line on it "It is unacceptable that the court should, on the first indication of unlawfulness affecting any aspect of a transaction, draw up its skirts and refuse all assistance to the plaintiff, no matter how serious his loss nor how disproportionate his loss to the unlawfulness of his conduct."

[DGuller]

That sounds like a crazy business to be in, since anyone buying insurance against regulatory action is guilty.  It's like selling life insurance in a terminal cancer ward.

Devil's advocate here:  regulatory action is not always done against the guilty.  Regulators are often politicians themselves, or have politicians in their chain of command.  Many regulators are not above harassing the entities they're regulating, knowing how disruptive it is to the business to defend themselves.

[HisMajestyBOB]

In my experience, sometimes the regulators are full of shit and are looking for a shakedown, sometimes they're mistaken / just plain wrong, and sometimes they're right on the money. And sometimes they just miss / ignore something egregious, but sometimes that's because they have bigger fish to fry.

[The Minsky Moment]

That sounds like a crazy business to be in, since anyone buying insurance against regulatory action is guilty.  It's like selling life insurance in a terminal cancer ward.

The reference above was mostly to private civil law suits.

That said, it is common for public companies and even some private ones to purchase Directors and Officers insurance policies that cover administrative or civil claims brought by the SEC and other regulators.  The insurance is purchased in advance of any investigation. It is insurance against the possibility that the SEC might take some action in the future.