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Reviewing the Terms of a D&O Insurance Policy


Know the D&O Ins & Outs of What’s CoveredKnow the D&O Ins & Outs of What’s Covered

Directors & Officers (D&O) Liability insurance is needed for executives and board members of private, public and non-profit companies to protect against allegations of wrongful conduct. Claims can be brought against by company stakeholders such as owners, investors, lenders, employers and securities holders. Customers, consumer groups, competitors, business partners such as vendors and suppliers, and government enforcement/regulatory groups can also file D&O claims.

What is important to note is that D&O insurance is not an easy, off-the-shelf product that one purchases. It requires the experience and expertise of a seasoned D&O specialist, as there are many parts to the policy, including terms, definitions and exclusions that make what is and isn’t covered critical. What’s more, insurance carriers can define the same terms differently while some policies include the definitions of certain terms and others don’t. This can all lead to significant differences in the type of coverage you carry.

First, let’s take a look at who you may want to cover. There are different sides to a D&O policy, each protecting a different segment of your leadership:

Side A—insures the personal assets of directors and officers

Side B—reimburses the business for its costs to indemnify executives alleged of wrongdoing

Side C—insures the organization when it is named as a defendant in a liability claim

Independent Director Insurance—covers independent directors if the organization can’t or won’t

For an alleged wrongful act to be covered, typically the claim has to be first asserted or “made” against the insured during the policy period. This is why D&O insurance is generally referred to as “claims made” coverage. Some D&O policies also require that the claim be reported to the carrier during the same policy period, known as “claims made and reported” coverage. Many insurance carriers provide some degree of a reporting “tail” to allow a short period of time after the policy expiration in which to provide notice of claims that came in during the policy period.

The definition of a claim varies from company to company. Basically, a claim includes any written demand alleging a wrongful act by a director or officer in his or her capacity as a director or officer, seeking monetary or non-monetary damages. This may be expanded to include investigative orders, grand jury subpoenas in actions that seek to hold the individual liable.

Defense costs are included in a D&O policy, and typically include reasonable and necessary fees, costs and expenses consented to by the insurer resulting solely from the defense and appeal of a claim against the insureds. It may also include expert or other specialist fees that are also consented to in advance by the carrier. In addition to expenses, D&O policies cover judgments/verdicts and settlements.

Standard exclusions typically in a D&O policy include: fraud, personal profiting, accounting of profits, and other illegal compensation exclusions, pending and prior litigation, bodily injury/property damage, pollution, and ERISA (the Employee Retirement Income Security Act of 1974). ERISA violations are usually covered under a Fiduciary Liability policy.

Axis Insurance Services specializes in securing D&O insurance, working with several key carrier markets to design a policy that best fits an insured. For more information about our D&O expertise and how we can help you, contact us at (877) 787-5258.

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Sources: Willis, AmWINS Group

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Blogged on: October 17, 2014 by Mike Smith
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