Specific D&O policy exclusions relating to claims based on bribes, political contributions, and gratuities are no longer common in D&O insurance policies. This may be due in part to the fact that a deliberate violation of the act is a felony, coverage for which would likely be denied by the criminal acts and other standard exclusions found in most D&O policy forms.

Even though there is no private right of action under FCPA that prevents shareholders and others from suing corporations and their directors and officers for FCPA violations, litigants have pursued various forms of follow-on civil lawsuits, and some commentators suggest that FCPA and related follow-on claims represent a growing exposure for some corporations.

Although so-called bribery exclusions are no longer common, insureds should be vigilant in identifying any such exclusions and understanding the limitations in coverage such exclusions can create. Note that the following example of an older bribery exclusion goes well beyond claims based on FCPA violations and excludes all types of claims based on or involving payments, political contributions, or other instances of influence buying, regardless of the legality of such actions.

(16) based upon, attributable to, arising from or in any way involving:

(a) payments, commissions, gratuities, benefits or any other favors to or for the benefit of any full- or part-time domestic or foreign governmental or armed services officials, agents, representatives, employees or any members of their family or any entity with which they are affiliated; or

(b) payments, commissions, gratuities, benefits or any other favors to or for the benefit of any full- or part-time officers, directors, agents, partners, representatives, principal shareholders, or owners or employees, or affiliates (as that term is defined in the Securities Exchange Act of 1934, including any of their officers, directors, agents, owners, partners, representatives, principal shareholders or employees) of any customers of the Insured Organization or any members of their family or any entity with which they are affiliated; or

(c) Political contributions, whether domestic or foreign.

Royal Insurance RSUIFP-RS-00002 (4/93)

In contrast, the exclusionary language in the following example, also from an older policy form, refers only to fines and penalties imposed in conjunction with political contributions, payments, commissions, or gratuities. It is silent as respects any potential actions brought against the directors and officers arising out of such activity that is not a violation of law.

The INSURER shall not be liable to make any payment for ULTIMATE NET LOSS arising from any CLAIM(S) made against any DIRECTOR or OFFICER:

(A) (2) for any fines or penalties imposed in conjunction with political contributions, payments, commissions or gratuities;

AEGIS 6100 (1/2000)

Some exclusions that might appear to exclude only FCPA-targeted activity may actually go well beyond the Act and might be broadly interpreted to exclude a wide range of otherwise legitimate activities.

Many organizations today are actively engaged in political issues and this phenomenon is likely to increase in the future. Such organizations often spend large sums in political-party contributions, and payments and commissions are frequently and legitimately made to customers, suppliers, and any number of other corporate constituencies.

Because so-called bribery exclusions might contain language precluding such alleged activity, even loss associated with a successful defense of such activity or associated with follow-on claims could be excluded.

Any proposed bribery exclusion should be carefully examined as such exclusions are often broadly worded and unduly restrictive. Unless the insurer can justify their existence or give a substantive price advantage by including them in the policy, these exclusions should be avoided.