Insurance firm might pay $5 million legal fees for suspended Bharti Walmart executives

Bharti Walmart, which suspended its chief financial officer and its entire legal team as part of a global probe into potential violation of anti-bribery laws in the US, had taken out a directors and officer's liability cover (D&O policy) worth $5 million.

The policy from HDFC Ergo General Insurance partly protects the company, its directors and top officers for wrongful actions that cause financial harm and result in a lawsuit. If there is litigation in the case then the insurance company will have to bear the legal expenses.

A senior executive of HDFC Ergo General Insurance was quoted in the media as saying that since Bharti Walmart had taken a pre-emptive step to suspend some executives, the chances of the claim are higher now. However, it is only after a legal suit is filed that the claim would arise.

Indian companies are also increasingly opting for D&O cover in the wake of growing instances of scams. The D&O policies provide cover to the company, its directors and senior management executives against liability claims from third parties including shareholders, customers or employees.

D&O policies covering independent directors are also an assurance to them that they will be protected in case of a legal suit.

This has been especially so after the unravelling of the Satyam scam, which saw the Hyderabad-based company make a claim from Tata AIG, as it had taken a $100 million D&O policy.