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| InterWest
Insurance Services, Inc. fields a team of experienced insurance
professionals who have managed the negotiation, purchase and
maintenance of pre- and post-IPO Directors and Officers (D&O)
Liability Insurance contracts for over two decades. InterWest and its
affiliates have access to the global public and private D&O
insurance marketplace. Our management liability specialists currently
advise a diverse group of financial institutions, privately owned
companies and publicly traded companies.
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today's litigious environment, Directors and Officers (D&O)
Liability Insurance coverage is an essential part of managing a private
or publicly traded company. Directors and Officers are held to a high
standard and have legal responsibilities to shareholders, investors,
creditors, employees and others.
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| Why Buy Directors and Officers Liability Insurance? | Top of Page |
Over
the past decade, the role of D&O's has evolved into much more than
a prestigious title and rubber-stamp approval of management decisions.
Increasingly, the public is holding D&O's responsible for the
day-to-day operation of their companies.
D&O's
are held responsible for implementing sound corporate policies and
procedures and for monitoring management's implementation of them. This
can include day-to-day decisions such as sound investment management,
release of non-public information, conflicts of interest, hiring and
firing decisions, and corporate policies regarding discrimination,
sexual harassment, benefit plans, mergers and acquisitions, just to
name a few.
- Investment Management - D&O's
can be held personally responsible for investment decisions in managing
the company's portfolio of assets. Claims can result from choosing the
wrong asset manager, failing to have policies limiting the type and
duration of asset purchases, failure to require board approval for
purchases in excess of certain limits, etc. Regardless of the reason,
D&O's can be brought into a suit for failure of the company's
portfolio to perform.
- Release of Information - The
SEC requires companies to abide by specific procedures for
disseminating company information to the public. The SEC can impose
both criminal and civil penalties for improper release of information
by the Company. While D&O insurance is not intended to protect
against intentional wrongdoing, a well-written D&O policy can
protect the innocent as well as company assets against allegations made
by the SEC, shareholders and others, until final adjudication of
wrongdoing.
- Conflicts of Interest - This
is a major area for potential lawsuits against Directors and Officers,
who typically serve on multiple boards and have investment portfolios
that may encompass competitive situations. It is common, for example,
for large physician groups in a hospital to have board representation.
It can be alleged that these doctors have a conflict of interest when
negotiating with other physicians. As another example, it is common for
companies to have their attorneys, accountants, brokers and other
professional consultants on their boards. This is usually a very bad
practice, unless such professionals recuse themselves from voting on
specific issues and refrain from providing professional services.
Companies should adopt formal Conflict of Interest policies to monitor
such conflicts. Shareholders and other potential defendants will
utilize any angle they can in order to win a verdict.
- Hiring and Firing Decisions - Although
Directors and Officers are not individually involved in most hiring and
firing decisions, they assume ultimate responsibility for ensuring that
their company is well run and provides a safe and discrimination-free
work environment. The D&O's approve the company's policies and
procedures regarding hiring, firing and promoting employees. They are
also responsible for supervising senior management in the
implementation of these procedures. Both the Company and the individual
D&O's can be named in an employment-related claim. A properly
worded policy protects all concerned parties.
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| Issues to Consider in Evaluating D&O Coverage | Top of Page |
Directors
& Officers Liability Insurance is available from many insurance
carriers. No two policies are exactly alike. Our Professionals deal
with the unique features of each policy and negotiate changes to obtain
the broadest possible coverage to fit our client's needs and budget.
- Policy Limits - Standard
limits for most small- to medium-sized organizations start at $1
million, but most public companies buy at least $5 million in coverage.
Companies typically buy an individual claim amount and an aggregate.
For example, a minimum policy may be a $1 million/ $2 million policy.
This means that the insurer will pay a maximum of $1 million for any
one claim, but will pay an aggregate amount of $2 million in the given
policy year. This could mean one million-dollar claim and ten $100,000
claims.
- Claims-Made Coverage - Almost
all polices are written on a "claims-made" basis. However, almost all
policies have an extended reporting endorsement. This means that, when
you cancel the policy, you may purchase coverage for a period of time
at a predetermined rate to cover later claims relating to the expired
policy period. That rate can vary from 75% of the expiring premium to
more than 250%. Usually, that rate is not negotiable; however, you
should be aware of terms offered by different insurers.
- Does The Policy Cover The Company Itself? - Most
D&O policies provide coverage for an individual Director or Officer
(usually Coverage Part A) and coverage for the Company's obligation to
indemnify a Director or Officer (Coverage Part B). Some policies do not
cover the actual Company (the "Entity") in a D&O suit (Coverage
Part C). You should know if Coverage Part C is included in the policy.
- Do Your By-Laws Indemnify the D&O's? - A
D&O policy claim can be triggered by the legal obligation of the
policy holder (the Company) to defend a case or pay a settlement. Are
your D&O's indemnified in the Corporate By-Laws? Coverage Part B
protects the Company's balance sheet when there is an obligation to
defend the D&O's.
- Does your Policy Segregate Defendants? - Most
D&O policies will exclude coverage for fraud or other criminal
activities at some point. Although insurance policies should not
provide defense for criminal actions, it is necessary to provide
defense for the Company and other innocent parties that might be named
in a lawsuit due to a criminal action on the part of someone else.
Without some form of segregation clause, innocent defendants may be
without D&O coverage if one of the other D&O's or even an
employee commits a criminal act.
- Does your Policy Cover Fines, Penalties or Punitive Damages? - Settlements
for large D&O cases can involve punitive damages, which can be even
greater than the actual damages. Most policies specifically exclude
punitive damages, but policy modifications can be made for coverage in
some situations.
- Employment Practices Liability - Employment-related
claims are a growing risk for Directors, Officers and Companies. No
entity with employees should overlook Employment Practices Liability
insurance (EPLI). Most D&O policies can provide some form of EPLI
coverage. In some circumstances, it makes sense to include EPLI
coverage with D&O. In other cases, separate EPLI coverage is the
best strategy. The choice can be a matter of policy limit allocation,
premium, deductible or breadth of policy terms and conditions.
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