Willis Responds to Landmark Ruling on Fund Directors' Liability

The ongoing financial crisis has claimed many victims over the past few years, but while banks and their depositors have been largely protected by taxpayer bailouts, the investment fund community, and the hedge fund industry in particular, has had to fend for itself to the tune of billions of dollars in investment losses. In response, Willis Group Holdings WSH, the global insurance broker, has designed a bespoke insurance solution specifically to protect the liability of fund directors, including in the event of a collapse which exposes them to significant financial costs. The Fund Protect solution comes on the heels of a landmark judgement by the Grand Court of the Cayman Islands, which found two independent directors of a failed fund guilty of “wilful neglect” and facing USD$111 million in damages. The case against the directors of Weavering Macro Fixed Income Fund Ltd, which collapsed in 2009 and had been listed on the Irish Stock Exchange, highlighted directors' exposures to liabilities, according to Willis. Ever since the start of the financial crisis, corporate governance has risen up boardroom and regulatory agendas, precipitating tighter controls across the banking and investment industry. Many institutions and firms now spend a great deal of time identifying potential exposures and implementing a controls framework, including training, monitoring and oversight, to minimise the risk of events that could give rise to liability. Insurance is an important backstop in this regard should controls fail and a legal liability arise. However, as the Weavering verdict demonstrated, such controls do not always work and, in the event of a crisis, a firm's existing insurance coverage may fall short of protecting the personal liability of a fund's directors. This is why stand-alone protection for directors is critical and where Fund Protect comes in.