Directors’ and officers’ (D&O) claims may result from the LIBOR manipulation scandal, according to Zurich Australia Head of Financial Institutions Damian Lynch.

However, professional indemnity (PI) policies are unlikely to respond, he told brokers at the Zurich Financial Lines Forum in Melbourne.

The LIBOR (London Interbank Offered Rate) is an interest rate benchmark calculated by asking 16 banks the rate at which they can borrow through interbank offers.

It was manipulated by bank staff, with Barclays fined £290 million by three UK and US regulators.

Investors have launched a class action alleging banks acted as a cartel to suppress the rate, which affects the amount of interest returned to them.

Other lawsuits include shareholder derivative actions claiming breach of fiduciary duty by the banks’ directors and officers.

Mr Lynch says Zurich is considering the implications for D&O cover.

“The best predictor of D&O claims is destruction of shareholder value and we’re definitely going to see that here,” he said.

“Whether those fines and penalties are covered by insurance policies or not, they have to be paid and there will probably be sufficiently large sums to damage the balance sheets of our insureds. After that, we’re pretty sure D&O actions will follow.

“Is it a market-hardening event in itself? Probably not. But it is something we’re watching very closely.”

Fewer exclusions apply to D&O cover than PI policies, which contain exclusions for market abuse and fraud, he says.

In general, for a PI policy to respond, the insured must meet the definition of “professional service”.

But there is no clear professional service being provided in this situation, Mr Lynch says. There is no customer and banks are not paid for making LIBOR submissions.

The definition of “loss” in PI policies also poses problems, because underwriters will pay a claim if the insured has lost money but not if another party is holding money to which it is not entitled.

The insured has lost money paid in fines and penalties but these are covered only where legally insurable, Mr Lynch says.

Plaintiffs must also establish that the LIBOR was manipulated and what the rate should have been on each day of the relevant period, which will not be easy.

Bankers’ blanket bond insurance will “almost certainly” not be triggered because personal financial gain must be evident, he says.