Ripples spread from the subprime crisis

Large multinational firms are risking an increased threat of claims, including class actions, as a result of rising volatility in the financial markets, warned Zurich. This could be a major source of concern as the full impact of the subprime crisis and its ensuing liabilities, unfolds across the globe, said the insurer.

Commenting on the situation in Europe, Paul Schiavone, chief underwriting officer, directors and officers liability insurance, Zurich Global Corporate Europe, said: ‘We are seeing a rise in the number of shareholders bringing action against companies.

There is also a rise in claims related to subprime losses.

‘It’s very interesting to see that subprime losses can also relate back to employment practices claims.’

French bank Société Générale has been hit with both types of claim. In January an association of shareholders and former employees initiated legal action against the bank for its handling of the rogue trader incident.

Schiavone also explained how the credit crunch could strike outside the banking sector. ‘Companies with a lot of debt could have problems when it comes to refinancing or if interest rates go up.’ He hinted that the number of bankruptcies in Europe could rise as a result of tighter credit. Bankruptcy related claims are the most frequent D&O claim in Europe, he added.

Another trend highlighted by Schiavone referred to large shareholders taking issue with the way a company is doing business. Activist shareholders can launch a claim in order to prevent a type of action, such as a merger or the sale of assets, from taking place.

While the European legal system limits the effectiveness of class action claims, these too are a growing trend, said Schiavone.