Raju may be ineligible for D&O cover

Satyam Computer’s $75 million Directors and Officers (D&O) insurance is unlikely to provide a cover against claims arising out of irregularities committed by the company’s founder B Ramalinga Raju.

An insurance company executive associated with the D&O cover issued to Satyam said that the policy is meant to defend directors and officers against claims arising from negligence in the service provided. The policy does not cover Raju since he has confessed of committing fraud, said the source.

“The policy covers past, present and future directors but they should not have confessed of fraud or found guilty of intentional negligence,” the executive said. The insurance companies Tata AIG, New India Insurance and ICICI Lombard will bear the legal expenses of any case filed against the directors.

Since December, when Satyam aborted a proposal to acquire two companies where Raju’s sons had an interest, the five of the IT company’s directors have resigned along with the CFO, Vadlamani Srinivas.

This policy provides protection for claims brought against directors, officers and employees for actual or alleged breach of duty, neglect, misstatements or errors in their managerial capacity.

In addition, insurance industry sources said that the policy may not be sufficient for the legal expenses of the directors of Satyam.

Small companies in India take D&O covers of $5-20 million, while Indian companies listed in US generally have a policy of $50-$100 million.

The sources said that the claims due to the class action suits in the US and other cases is likely to exceed the $75 million insurance.