For D&O insurers the pattern of multiple civil claims and regulatory/criminal investigations will be familiar territory. Key issues will be what senior management knew, and when, in order to determine whether conduct exclusions will bite and to ascertain exposure for defence costs. VW's CEO, Martin Winterkorn, has already resigned and his replacement, Michael Horn, has recently been called to give testimony before a U.S. Congressional committee. This is no doubt the beginning of multiple regulatory investigations in numerous jurisdictions.
It is important to remember that VW is a German company, governed by German corporate law. Going forward, the market will be watching carefully to see whether the supervisory board is moved to bring a breach of fiduciary claim against its management board, and whether dealings with regulators will be approached in a similar fashion to Siemens a number of years ago.
At the time of going to press, a securities class action had been brought by purchasers of VW's American Depositary Receipts in the Eastern District of Virginia against Volkswagen, its operating division and its D&Os, alleging that investors were misled by the company's failure to disclose its use of defeat devices in its products. An investor action has also been brought in the Netherlands under the Dutch collective action provisions and the litigation funder, Bentham Europe Limited, has announced that it is seeking to organise a shareholder class action in Germany. Regulatory civil and criminal proceedings and penalties in the US and Germany and potentially elsewhere are likely to follow. Separately, a raft of consumer class actions brought by the purchasers of the cars containing the defeat devices have been threatened and/or instituted in the US and elsewhere.
Press reports are making comparisons with the scale and impact of the "Libor" and Enron scandals for the FI sector. We will report further on how this area develops in the coming weeks.
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