Our Scariest D&O Risk – A Director’s Greatest Dread: A Reservation of Rights Letter

Scariest Risks

Scariest Risks

For directors, the scariest risk is discovering—too late—that neither their company nor their company’s insurance will stand behind them in times of litigation.

D&O liability insurance is low incidence/high impact cover (admittedly less low incidence in the U.S. than elsewhere). When a claim hits, it’s often out of the blue. Major fraud, scandal, computer failure, pollution, death/personal injury, product recall are all examples of high-impact situations that have hit global brands in the recent past.

For large listed companies, the risk of securities claims and/or significant regulatory investigations on the back of any of these events is very real. The costs and potential losses involved can have a significant impact on even the most robust of balance sheets.

It is bad enough for directors to find themselves caught up in litigation storms of this kind. The true nightmare begins though when they discover that the company on whose board they sit is either unwilling or unable to stand behind them financially.

It then reaches its scary peak when the directors receive lengthy reservation of rights letters written on behalf of their D&O insurers expressing doubts and concerns as to the position on policy coverage.

In situations where personal liability is of potentially epic proportions, letters of this kind are not as rare as directors might imagine. Those who have lived, rather than dreamt, the nightmare understand the value of focusing on the really important elements of cover long before a claim first hits.

The devil always hides in the detail.

This post was part of the special feature about Our Scariest Risks, published October 29, 2012. The feature also included these other risks:

About Francis Kean

Francis is an Executive Director in Willis Towers Watson's FINEX Global, where he specializes in insurance for Dir…
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