Saturday, August 8, 2009

Make Sure You've Got the D&O Coverage You Need

Thanks to Mark E. Miller of Greenberg Traurig for this slightly dated but still excellent article: What You Need to Know About D&O Insurance: the Top Ten List.

Although properly negotiated traditional D&O coverage is the building block of any D&O insurance program, such coverage presents certain unavoidable risks, even when properly negotiated. First, coverage for the corporation can exhaust available limits, leaving directors and officers without coverage. Second, a bankruptcy court could determine that policy proceeds are assets of the estate, and prohibit payment to the directors and officers under the policies. And third, innocent directors could lose coverage because of misrepresentations, illegality, or deliberate fraudulent conduct of corporate insiders.

New D&O insurance products address some of these issues. Side A-only excess coverage cannot be exhausted by payments to the corporation and is beyond the grasp of bankruptcy courts, since none of its proceeds are paid to the corporation. Independent Director Liability (IDL) coverage is designed to cover independent directors in situations where other coverage is unavailable due to the adverse conduct of corporate insiders.

Unfortunately, unlike other types of business insurance, there is no standard D&O insurance policy form for any of these D&O insurance products, and there is significant variability in language contained in various D&O insurance products. The immense impact that this variability can have on the personal wealth of directors and officers is illustrated in the following “top ten” list of D&O insurance issues

For the 10 tips, click here.

3 comments:

  1. Steve, good comments. For additional detail regarding Independent Director Liability Insurance policies, I invite your readers to check out a piece that I wrote on the subject, which can be found here:

    http://corporateinsuranceblog.com/category/do-insurance

    Scott Godes

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  2. Thanks for dropping by. I will take a look at what you wrote.

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  3. Its always recommended that when buying a policy one should be clear about what one needs as everyone had different requirements. Also before signing the policy papers they must be thoroughly read and understood as it will help one to understand all the coverages.

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