Directors and Officers Liability Coverage For Satyam

There have been some ill researched news items doing the rounds in leading financial dailies as well as business television regarding the purported USD 75 million dollar D and O insurance cover that Satyam has in force.Here is a quick primer on how a typical D and O policy will behave in the given circumstances:
a)While the basic coverage intent is to protect the personal fortunes of the Directors/Officers of Satyam on account of any deriliction of duty, almost all D and O policies will pay up only for Civil wrongs. Therefore if there is any Criminal Liability , then Directors/ Officers can kiss the policy goodbye. The only good news is that there could be a"Final Adjudication " clause which would allow the for the advancement of all legal costs and expenses till such time the criminal liability is finally awarded by the courts. Once such Liability is confirmed then the insured would have to pay back the insurers all such amounts advanced.
b)There is a seperate section in the policy which will pay up on behalf of the company if there are securities claims made by shareholders. This is normally called side C of the policy .We are already seeing class action suits being filed by ADS holders in the US for the reference period 2005 to Jan 2009. The claimed amounts on account of erosion in maket capitalisation would potentially be upward of 4 billion USD.
c)Any insurance policy is incepted basis a proposal(application) form containing specific information provided by the Company . In this case the insurers would be well within their rights to rescind coverage to the specific Director/ Officer (in this case most likely the CFO )who made these misrepresentations in the insurance application.Normal Policy language would allow for the "innocent assured" clause by which such of those Directors/ Officers who did not have prior knowledge of the happenings in Satyam would still have protection under the policy
d)Finally , if there is a "Order of Payments" Clause, then the hierarchy of payments to be made between Side C claims on the Company and the Payments to made to the individual Directors/Officers can be clearly established. Else the total policy amounts would have to shared on a proportional basis between the 2 different claim heads.One needs to check if there is a" Bankruptcy " clause in the policy which would then define which of the claimants have first recourse under the policy.