The last 18 months have been marked by a surge of high-profile Directors' & Officers' (D&O) insurance class action claims – and mining companies have not been immune.
Around the world, mining companies such as Katanga Mining, Rio Tinto, Tahoe Resources, Asanko Gold, Barrick Gold and Northern Dynasty Minerals were subject to class actions over the course of 2017.
Australia has become a happy hunting ground for litigation funders who have been able to capitalise on an increasingly litigious environment that was called “arguably the most liberal class action regime in the world”, by law firm Wotton + Kearney in partnership with XL Catlin.
Based on the claims activity seen in the D&O insurance market during the course of the year, class actions ended 2017 at an all-time high; with investigations and actions from regulatory bodies becoming increasingly onerous and costly to defend. Directors must take steps to protect the company’s balance sheet and themselves, personally, from lengthy and expensive legal claims.
John Koeppler, National Head of Mining at Gallagher, says that the current claims environment is making insurers and mining clients focus more intently on their D&O risk.
“Capacity in the D&O market for mining companies is very much stretched,” Koeppler said.
“The problem we’ve had with class actions is that if there is a D&O policy in place that has 'Side C' coverage, the entire limit of liability has often been consumed by the class action, whether that be through legal fees or settlements.”
How can mining companies prepare?
One of the major problems facing mining companies in relation to shareholder class actions is the seeming inability to make forward-looking statements. As continuous disclosure remains the key focus of litigation funders seeking to bring a class action lawsuit on the behalf of shareholders, mining firms have to be increasingly careful around market announcements.
Koeppler added that a firm focus on corporate governance is paramount to avoid any issues. “The issue for mining companies is that they have to have very strong corporate governance – particularly around continuous disclosure," he said.
“However, the problem with mining is that volatility within production commodity pricing and exchange rates can also impact cash flow and share prices, which could in turn lead to a legal challenge.”
How Gallagher can help
With stretched capacity and an influx of claims, pricing for D&O cover has sky-rocketed over recent years. It has been widely reported that insurers are seeking D&O premium increases of between 40-400%, highlighting the challenges facing directors.