One consequence of the Yates Memo that has not received as much attention is whether current directors-and-officers liability insurance provides appropriate insurance coverage for the legal expenses incurred by executives who might go through an internal investigation. The Yates Memo makes clear that companies must now first investigate and turn over to the Justice Department information on individuals in any investigation (Foreign Corrupt Practices Act or otherwise), or risk not receiving any cooperation credit.

The typical D&O policy may not fully cover officers and directors caught in an internal investigation. The issue for many D&O policies is around the “trigger” for coverage. Such insurance usually kicks in only when an outside body (such as the Justice Department or Securities & Exchange Commission) would issue a subpoena or request an interview of a board member or senior executive.

An internal investigation, however, does not usually begin at such a starting point. This creates an insurance gap when an officer or director needs to retain legal counsel to represent him or her in an internal investigation.

This coverage gap can be quite problematic, particularly in light of the Yates Memo. Companies have been instructed by the Justice Department to go as high into the organization as possible rather than focus on the lower level employee who may have actually paid the bribe. Certainly this means that any board member on a company’s audit committee could well be interviewed by outside counsel at an early stage in an investigation into a possible FCPA violation. Indeed, under such a scenario, a board member or senior executive might be named to the Justice Department or SEC before he has retained legal counsel.

All of this means that any person who is offered a board of directors position may well need to ask some pointed questions on the scope of a company’s D&O coverage before accepting such a position. If that person does not, and is somehow caught up in FCPA investigation, the financial costs can be catastrophic before D&O coverage kicks in. Worse, the lack of D&O coverage may delay the director’s retention of counsel, which might lead to Justice Department scrutiny in the light of the Yates Memo and the government’s desire to go after individuals for white-collar crime going forward.