I recently took part in a non-executive directors’ forum. We fell to discussing how non-executive directors (“NED’s”) could obtain sufficient levels of comfort so that they enjoyed adequate protection under a company’s Directors & Officers program.
One of my co-panelists (himself an NED of a major insurer) made the perfectly valid point that in the real world there was little enough time to devote to discharging one’s own duties as a NED without making a special study of D&O insurance.
Has D&O Become Too Complex a Subject?
That got me thinking. It’s not as if there’s any lack of available information on the subject. In addition to a variety of blogs, articles, and regular features and conferences on the subject, there are at least four books devoted to International Directors & Officers Liability Insurance. I should know as I am responsible for editing one of them. Far from there being a lack of material, it strikes me as more likely that there is simply too much.
How to Tell if You Have Adequate D&O Protection
With that in mind I set myself the challenge to come up with ten questions to which any prospective or serving NED might reasonably expect straightforward answers. Plainly there are many more than ten questions one might ask, and the list is not intended to be exhaustive.What I have instead sought to do is to focus on the engine room rather than the shop window. In other words, the questions derive from my experience in dealing with real D&O claims rather than from a desire to tick boxes on the number of insured perils covered under the policy.
In combination, the answers to these questions should assist any NED seeking comfort as to the quality of the protection available to him/her under the company’s D&O insurance.
Ten Questions for Non-Executive Directors About D&O Liability Insurance
- With which categories of employee at what level of seniority do I share the D&O limit purchased by the company on my behalf?
- Do I enjoy the benefit of any separate non-executive directors’ limit? If so, how much is available just for me and what is the trigger for that cover?
- Do insurers unequivocally commit to waive their right to rescind the policy—unless I am guilty of fraudulent misrepresentation or non-disclosure?
- Does the policy provide a mechanism under which insurers will advance all defense costs and legal representation expenses to me pending resolution of any dispute between the company and the insurers as to the extent of such costs ultimately covered under the policy?
- Am I covered for the costs of an investigation following death or bodily injury occurring as a result of corporate activity?
- What provision is there in the policy for my protection in case of an actual or potential conflict of interest between the company and me, as a result of which I may require separate legal representation?
- In the event of a class action lawsuit against me and the company, what protection do I have from insurers where the company fails or refuses for any reason to pay the deductible usually applicable to such claims?
- What protection does the policy provide against future claims against me if I retire or resign during the policy period, or if during such period the company is the subject or object of mergers and acquisitions activity?
- Am I covered for any claims arising from, or relating to, the making by the company or by me of any gain, profit or advantage to which I am not entitled, provided I have not acted dishonestly?
- Is there any obligation on insurers to provide me with a written and reasoned statement as to policy coverage within a specific time frame after I submit a claim?