When serving as a board member for a corporation or non-profit, question the Management Liability policy limits and the coverage. They must be sufficient to protect both the entity and your personal assets.

1. EXECUTIVE LIABILITY PRACTICE
Becoming a Knowledgeable Buyer of
Directors and Officers Liability Insurance
Historically, directors and officers
received Directors & Officers
Liability insurance coverage
through the companies they served,
but had little interest in the details.
Other than knowing the total
amount of coverage purchased and
size of the deductible, little else
was made available to the Board
and few questions were asked.
With an ever changing legal and
regulatory landscape, the days
of relegating insurance details to
an underling are long gone. D&O
insurance coverage and add-ons
are being scrutinized more closely,
by more directors.
In this changing legal landscape,
becoming a knowledgeable buyer
of D&O insurance is crucial.
Are your D&O program limits acceptable and sustainable
based on the company’s risk profile?
A company experiencing significant claims can drain a large portion of the available limits,
even if none of the claims go to trial. Conducting a benchmarking study in connection
with the purchase of D&O insurance against companies similarly situated can provide
valuable information regarding whether the limits are what they should be. An additional
study (for publicly-traded organizations) that embraces the potential market capitalization
changes resulting from significant events will provide a more meaningful data point when
assessing D&O exposure and choosing limits. The potential drop in market cap and length
of the class period are key metrics in calculating investor losses and, ultimately, damages.
Privately held companies should thoughtfully analyze their potential defense and indemnity
exposures for employment claims, as they are the leading causes of loss under private
company D&O policies.
Are your D&O limits placed with an insurance carrier that
is financially stable and a consistent underwriter in the
marketplace?
Financial security/strength, reputation for fighting coverage, and timeliness of claims
payments are key factors in evaluating potential insurers. They do not hesitate to assess
your company’s risk profile—why not do the same when considering an insurance
company to provide your coverage?
Understand how the insurer will handle a request to use preferred defense counsel.
Complicated claims that involve numerous defendants and allegations can arise. Have
a clear understanding on choice of counsel, who the potential defendants are, and how
potential allegations will be treated under the D&O insurance contract.
Is your D&O contract crafted to respond to claims brought by
the following?
‚‚ Regulatory bodies
‚‚ Customers
‚‚ Suppliers
‚‚ Vendors
‚‚ Competitors
‚‚ Employees
‚‚ Shareholders
‚‚ Creditors
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2. EXECUTIVE LIABILITY PRACTICE
Claims against directors and officers come from all angles. These allegations and
lawsuits can place tremendous strain on the day-to-day business operations, and place
directors’ and officers’ personal assets (as well as company assets) at risk. Make sure
your company’s insurance program contains the necessary provisions to ensure the right
coverage is in place to protect both you and the company balance sheet.
Do you know who you’re sharing coverage with?
Liability for claims that trigger a policy protecting you may be shared with past directors
and officers going back to the company’s inception, as well as future officers and
directors. A history of decisions, actions/inaction, dialogue and other choices are typically
gathered under one D&O insurance program. Your program should be ample enough to
cover this history of exposure and individuals. Your personal assets are at risk if the D&O
policy limits are unable to adequately respond due to exhaustion prior to closure of a
claim. Always remember the fact that you are sharing the D&O limits not only with other
individuals, but also the company. If this becomes an issue, you may want to explore
additional individual protection in the form of a Side A Difference in Conditions (“DIC”)
policy.
Does your D&O coverage integrate and align well with the
company’s other insurance coverages and risk profile?
An assessment that encompasses both business continuity and emergency risks can be
extremely valuable in helping to ensure that the D&O program’s contract wording and limit
amounts are aligned with a company’s other insurance policies. It is vital for all potentially
affected insureds to understand the exposures that the D&O insurance will (and will not)
cover.
BECOMING A KNOWLEDGEABLE
BUYER OF DIRECTORS AND
OFFICERS LIABILITY INSURANCE
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