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What to Look for in Directors & Officers Liability Insurance


What to Look for in Directors & Officers Liability InsuranceDirectors and Officers (D&O) Liability insurance is a complex coverage and requires expert evaluation of a company’s operations and exposures in order to purchase a policy that is designed to respond to your specific needs. Following are some of the key factors to review when looking at D&O insurance.

  • Are your D&O limits in sync with your risk profile? This requires looking your firm’s financial strength and risk tolerance along with litigation trends. Only then can you determine the appropriate D&O policy limits, terms and deductibles you should secure for your company. It’s also imperative that you and your directors and officers understand the terms and conditions of the policy and are comfortable with them.
  • How does the policy make payment in the event of a claim? The policy provision on the priority of how payments are made is important. A typical provision provides that any payments under the D&O policy will be paid first under the policy’s Side A coverage, which is designed to protect the assets of individual directors and officers before any payments can be made to the company. Side A covers each director and officer, Side B reimburses the business for its expenses to indemnify executives of wrong doing, and Side C covers the organization itself if it’s named as defendant in a liability case.
  • What exclusions exist in the policy? There may be number of exclusions in a D&O policy including claims arising from pollution, derivative action or pension funds that need to be evaluated.
  • What is the insurer’s track record for handling and paying claims? With which insurer you place your D&O coverage is very important. A number of factors come into play including the carrier’s financial health and reputation for claims payment. Look at whether an insurer has a reputation for delaying payment of defense costs and litigating with insureds over coverage.
  • How broad is the policy’s definition of a claim? Preferably, the policy definition should include written demands for both monetary damages and other relief. Also, some policy definitions do not include criminal proceedings, although most policies include coverage for defense costs in a criminal proceeding. Make sure you understand how your policy is written. Moreover, many definitions do not include formal investigations against “insured persons” prior to those investigations resulting in a formal proceeding. For example, an insured person who is a target of an SEC investigation may not have coverage for defense costs incurred prior to the SEC commencing a formal proceeding against the insured person unless the definition of Claim specifically includes investigations.
  • When do you need to notify the carrier of a claim? D&O policies typically require an insured to give notice to the carrier of a claim as soon as practicable. In order to eliminate the risk of inadvertent delays in reporting a claim (which can give rise to a coverage defense by the insurer), the policy could require notice of a claim only after either the company’s in-house general counsel or risk manager first learns of the claim.

These are just some of the factors to evaluate when buying or renewing your D&O insurance. Axis Insurance Services specializes in securing D&O Liability coverage and can help you obtain a policy that is tailored to your needs. Give our professionals a call at (877) 787-5258.

Sources: NYSE Governance Services, ACE Insurance Group

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Blogged on: July 13, 2015 by Mike Smith
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