D&O – Effects of Time-Barred Crimes on D&O

Valor Econômico published an article looking at the possibility of defendants in the operation Lava Jato not being sentenced for the accused crime.

This is because, in the Brazilian judicial system, a defendant can appeal against judicial decisions, even in the Supreme Court.

The steps of the appeal process are like this: There is a sentencing by the first judge which can be appealed. It may take some years to go from the notification of appeal to the decision of the court judges. After the court ruling, there is the possibility of appeal to the supreme court, where again, more time will be needed for the ruling to be announced.

In this interim period, the crime being investigated could be time-barredThis would mean that the defendant could no longer be sentenced for the crime.

What is the relationship between time-barred crimes and D&O insurance?

When someone is prosecuted for a crime, they have the right to put off payment of defense costs until judgement. The insurer pays the legal fees and in the case of sentencing or confession, the defendant has to reimburse these costs. This means that the insurer does not cover criminal acts.

The problem of time-barred crime is that defendants that are involved in corruption, end up not being sentenced and the insurers, not reimbursed.

Perhaps the market has to change the conditions of offer in the D&O to avoid increased losses due to corruption, seeing as it is impossible to foresee the outcome of a process of this nature.

Some may ask that if D&O doesn´t cover the defense costs of corruption cases, the defendant will be vulnerable and the policy will lose its protective effectiveness. This is not the case. The policy protects the individual from, for example, strict liability as predicted in the Consumer Law, wrongful tax deeds, frequent workplace accident criminal proceedings, employment practices liability, and environmental defense costs, amongst others.

As well as this, by the recent Federal Police operations and by the levels of Leniency Agreement, we have noticed that unfortunately corruption is the modus operandi of many individuals to guarantee their participation in public contracts. In these cases, the insurance cannot serve as an instrumental aid.

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