Insurance Risk Management Consulting » Directors and Officers Liability coverage

Director’s and Officers Liability Coverage Part Six

Premier Risk Management Admin — Sat, 27 Jun 2009 12:49:31 +0000

As you may have gathered by now, you’ll want to shop around, and negotiate your coverage – insurance carriers and underwriters want your business. Keep that in mind and know that everything is negotiable.

As you can see, there are many issues to be considered when buying protection for officers and board members.

There are many more coverage concerns in addition to the ones mentioned above that should be addressed as well.

It is in the best interest of the board to have an assessment of what it is that is important to them in terms of appropriate D&O coverage aspects and then to purchase a policy with the terms and conditions that will meet those needs.

This concludes our series. See our Director’s and Officers Liability Coverage tag to read the entire series.

Director’s and Officers Liability Coverage Part Five

Premier Risk Management Admin — Fri, 26 Jun 2009 06:41:20 +0000

You should also be aware that your insurer may not cover you for securities fraud.

A very common reason to buy D&O insurance is for protection against securities-law violations. Policies provide specific coverage for these claims while at the same time exclude claims related to fraud.

One way to soften this situation is to have clause in the policy that specifies that the fraud exclusion will not take effect until there has been final adjudication by a court of law confirming that in fact a fraud did occur. This at least insures coverage if you settle out of court.

Director’s and Officers Liability Coverage Part Four

Premier Risk Management Admin — Thu, 25 Jun 2009 00:38:42 +0000

Outside the US directorship may not be covered.

D&O policies may provide international coverage but the fine print reveals that it is only “to the extent possible.”

This is very vague. Some countries including India, China, Russia and Brazil require that companies maintain local D&O policies. It is therefore important to purchase additional D&O coverage outside the US.

Director’s and Officers Liability Coverage Part Three

Premier Risk Management Admin — Tue, 23 Jun 2009 00:36:52 +0000

To continue our discussion of D & O liability coverage, let’s look at an aspect of claims denial.

The insurance carrier may deny coverage for reasons unrelated to the claim against you. Insurers can rescind a D&O policy – return the premium and pretend as though there had never been coverage – if they conclude at a later time that the application contained false or misleading information.

Seems reasonable. Insurers today require that financial statements be attached to the application. The problem here is that if your CFO cooked the books unbeknownst to you. This could nullify the policy.

To avoid this scenario affecting other board members that have clean hands, it is important to pay attention to the severability clauses contained in the policy. This prevents the insurer from using the acts of one bad actor to disqualify other officers and directors from coverage.

However, an even better scenario is to find an insurer to write a policy that is nonrescindable and noncancelable.

Director’s and Officers Liability Coverage Part Two

Premier Risk Management Admin — Wed, 17 Jun 2009 20:54:30 +0000

Let’s continue our discussion of Director’s and Officer’s Liability Coverage issues from earlier today.

What are the coverage concerns?

D&O policies typically contain three coverage parts: “Side A”, which protects officers and directors when the company does not indemnify them; “Side B”, which reimburses the company when it does indemnify the officers and directors; and “Side C”, which covers claims against the company itself.

Pay attention to the coverage because company or corporate insiders’ interests don’t always coincide with directors and officers interests. That is what happened to five former directors of a defunct company where they were put in the position of having to pay $41.5 million of their own money to settle a lawsuit stemming from a companies bankruptcy.

To avoid this possibility, directors should demand a “Side A” policy of their own. This option has been very popular of late. These types of policies are also referred to as independent director liability or IDL policy; it can’t be exhausted by claims against the company or the officers.

Director’s and Officers Liability Coverage Part One

Premier Risk Management Admin — Wed, 17 Jun 2009 09:54:16 +0000

As we discussed yesterday, there are some issues you need to be aware of when considering Director’s and Officer’s Liability Coverage.

Let’s take the issue of the amount of coverage.

How much is enough?

As an Organization you probably need more of it. There is no simple rule for how much D&O coverage a company should carry. A recent Towers Perrin study indicated that companies with a market cap of between $1 billion and $2 billion are carrying about $40 million in coverage, while $10 billion – plus companies are carrying about $195 million.

The maximum limit available in the market place is in excess of $1 billion. This however would not even be enough for the next Enron or WorldCom. You should seek to discover how your limits were arrived at, what the typical settlements are for comparable-size companies in the same industry.

Director’s and Officers Liability Coverage Series

Premier Risk Management Admin — Wed, 17 Jun 2009 02:46:01 +0000

Director’s and Officer’s Liability coverage can be very complex to purchase as well as an expensive part of an organizations insurance portfolio. Careful consideration of company operations, procedures and the coverage goals of the board members are required in order to determine the right program for a particular company. Cookie cutter is not the way to go.

Over the next few days, we’ll be taking a look at a few of these issues.