In our autumn and winter editions of the newsletter, we reported on the continuing investigations into the VW emissions rigging scandal and the implications for insurers. Since then, Mitsubishi has admitted that it has manipulated its fuel emissions data since 1991. It is evident that this scandal is widening, as is the potential impact on D&O insurers.
In April 2016, VW reported an annual loss of €1.36bn for the year 2015 and revealed that its accountants have set aside a EUR 16.2bn provision following its admission that 11 million VW cars were fitted with "defeat devices" that allowed them to cheat emissions controls. This is an increase from the €6.7bn previously set aside.
VW has recently entered into a provisional agreement with the US authorities and agreed the basic features of a settlement with the class action plaintiffs in San Francisco. The details are still being finalised, but it is understood that the agreements will give half a million US consumers the option to have VW buy back their vehicle or the option to have their vehicle modified. VW is also expected to pay compensation of up to $5,000 to each consumer, and fund environmental projects promoting "green automotive technology".
In Europe, where emissions standards are less rigorous, buy-back options will not be offered, but VW is putting in place a recall programme which will recall affected vehicles and make changes so they are compliant with the EU emissions standards in force at the time the vehicles were sold.
Of particular interest to D&O insurers will be that VW has released a statement ahead of the company's Annual General Meeting on 22 June 2016 reporting that whilst investigations are still ongoing, "according to information currently available, no serious or manifest breaches of duty on the part of any serving or former members of the Board of Management have been established that would stand in the way of [shareholders ratifying the actions of the Board in 2015]." If this is correct, it would seem to suggest there is presently little evidence to support allegations that the decision to fit defeat devices was made by the VW Board.
Exactly what was known by relevant directors and the Board about the devices still remains unclear and the independent investigation by law firm, Jones Day, is awaited.
Mitsubishi widens the scandal
Unrelated to the VW scandal, in April, Mitsubishi admitted that its employees had used false tyre pressures to improve the fuel economy of at least 625,000 vehicles in test procedures. Since this revelation, the company's shares have lost 50% of their value and all models affected have been withdrawn from sale pending further investigation.
Whilst the scope of this saga is still unfolding, Mitsubishi's President, Tetsuro Aikawa, has recently indicated that the manipulation was "deliberate". In the event any claims are made against Mitsubishi’s directors, this statement might prove decisive. D&O insurers will need to examine their policies and specifically the scope of any admissions or conduct exclusions.
This is likely to be another significant scandal. Indeed the Japanese government has ordered an investigation and has labelled the scandal as extremely serious.
The potential exposure for VW, Mitsubishi, possibly other car manufacturers and their D&O insurers remains significant. We are monitoring the situation closely and will report further developments in future editions of the newsletter.