Directors and Officers Insurance Crucial to Risk Management
The economic turmoil of the last two years underscores the increasing need for business owners to take appropriate steps to maximize their directors and officers (D&O) liability insurance.
Due in part to the collapse of the U.
S.
credit market back in 2008 and subsequent claims that are still occurring, directors and officers will continue to face an increase in legal entanglements, including:
In light of these developments, it is even more important now for a firm to have a world-class D&O insurance program to help see it through worst-case scenarios.
D&O Protects against losses due to accusations of "wrongful acts" Most D&O policies broadly insure against losses arising out of "wrongful acts" committed by a corporation, its directors and officers, and other high-ranking employees.
Typically, D&O policies broadly define "wrongful acts" as "any act, error, misstatement or omissions, neglect or breach of duty" committed by the directors or officers while serving in that capacity.
Moreover, D&O insurance policies function as "litigation insurance," in that they advance legal fees and costs for defending claims against directors and officers.
For these reasons, an effective D&O insurance program is a crucial component to effective risk management in the face of increased scrutiny from courts, shareholders, and government regulators.
It's also important that a company understands some of the exclusions that fall under a D&O policy, including one which coverage has been excluded when a regulatory agency or statutory receiver, such as the FDIC, sues a former director or officer.
However, most courts have held that the exclusion does not apply in these situations because the exclusion is designed and intended to prevent collusive lawsuits between insureds.
Be sure to discuss this with a professional insurance advisor.
In addition, some insurers have also asserted that the "insured vs.
insured" exclusion precludes coverage for claims brought by a bankruptcy trustee or a creditors' committee against directors and officers on behalf of the corporation.
According to the Administrative Office for the U.
S.
Courts, business bankruptcyfilings remained high in the year ending March 31, 2010, totaling 61,148 compared to 49,091 in the year prior.
Given the risks of these arguments, one approach might be an exception (or a "carve-out") to the "insured vs.
insured" exclusion for suits brought by a bankruptcy trustee or creditor.
The best bet when it comes to D&O coverage is to be sure that a professional designs a program that meets the company's needs and that the plan, its coverages and exclusions are thoroughly explained.
Due in part to the collapse of the U.
S.
credit market back in 2008 and subsequent claims that are still occurring, directors and officers will continue to face an increase in legal entanglements, including:
- Bankruptcy litigation
- Shareholder claims
- Securities class actions
- Regulatory investigations and suits, and
- Criminal investigations and prosecutions
In light of these developments, it is even more important now for a firm to have a world-class D&O insurance program to help see it through worst-case scenarios.
D&O Protects against losses due to accusations of "wrongful acts" Most D&O policies broadly insure against losses arising out of "wrongful acts" committed by a corporation, its directors and officers, and other high-ranking employees.
Typically, D&O policies broadly define "wrongful acts" as "any act, error, misstatement or omissions, neglect or breach of duty" committed by the directors or officers while serving in that capacity.
Moreover, D&O insurance policies function as "litigation insurance," in that they advance legal fees and costs for defending claims against directors and officers.
For these reasons, an effective D&O insurance program is a crucial component to effective risk management in the face of increased scrutiny from courts, shareholders, and government regulators.
It's also important that a company understands some of the exclusions that fall under a D&O policy, including one which coverage has been excluded when a regulatory agency or statutory receiver, such as the FDIC, sues a former director or officer.
However, most courts have held that the exclusion does not apply in these situations because the exclusion is designed and intended to prevent collusive lawsuits between insureds.
Be sure to discuss this with a professional insurance advisor.
In addition, some insurers have also asserted that the "insured vs.
insured" exclusion precludes coverage for claims brought by a bankruptcy trustee or a creditors' committee against directors and officers on behalf of the corporation.
According to the Administrative Office for the U.
S.
Courts, business bankruptcyfilings remained high in the year ending March 31, 2010, totaling 61,148 compared to 49,091 in the year prior.
Given the risks of these arguments, one approach might be an exception (or a "carve-out") to the "insured vs.
insured" exclusion for suits brought by a bankruptcy trustee or creditor.
The best bet when it comes to D&O coverage is to be sure that a professional designs a program that meets the company's needs and that the plan, its coverages and exclusions are thoroughly explained.
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