Does Your Corporate D&O Policy Cover You After You Retire?

Does your corporate D&O policy cover you after you retire?

Really?

For how long?

In a recent New Jersey case, Schoon v. Troy Corp., two directors of were sued for breaching their fiduciary duty.

One of the directors named in the suit had retired from the company a year or two before the suit was brought. Subsequent to the suit being filed, the board had negated the bylaw extending insurance coverage to directors who had left the company.

By-laws can be amended at any time by the board. Thus it is vitally important for all directors to know how the by-laws and amendments to those by-laws affect them personally.

It is also vitally important to make sure that D&O coverage matches the prescribed intents of indemnifications contained in the by-laws. If coverage does not match up a tremendous gap could arise.

If you are contemplating retirement from a board how can you protect yourself?

• Have your Attorney draw up a personal indemnity contract whereby the company or its insurer covers you into retirement for legal fees and damages in cases involving your board service.

• Buy coverage against service related torts for a six year period, after that you will have been gone from the board long enough for them to forget about you, presumably. It is available and not that expensive. Well worth looking in to.

• In addition to the above, request that the company up a “minitrust” to pay the director for any deductibles or retentions that may apply in the company’s D&O policy.

Remember, every D&O policy has different terms and conditions. They can be tailored to meet the needs of your company. The bottom line is don’t get a shocker, review and assess your coverage.