D&O coverage at little or no additional cost.

Author:Slapin, Harold D.
Position:Boards of Directors
 
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Is your enterprise in the market for a directors and officers liability policy, or interested in improving an existing policy? There is much to know. For instance, D&O liability policies are not standardized. Some D&O insurers offer a fairly broad scope of coverage with their off-the-shelf products, and some companies have products that require tweaking.

It is important to recognize that the coverage afforded to private companies, public companies and not-for-profits will vary significantly.

Whether for a public, private or nonprofit enterprise, there are several common elements found in virtually all D&O insurance policies. The following will discuss some of those common elements and provide insight on how broadening coverage terms and conditions--at minimal or no additional expense--may improve the overall coverage options.

Broader Definitions, Broader Coverage

Basically, the D&O policy is designed to cover a claim--defined as a demand for monetary or non-monetary relief resulting from an alleged wrongful act (a negligent act, error or omission) committed by an insured person (a director, officer). It is important to review with a broker defined policy terms for "claim," "wrongful act" and "insured person/' as these can often be expanded upon to afford a broader scope of coverage.

As a rule, D&O policies are referred to as "claims-made and reported" policies. The definition of claim can also include criminal proceedings, administrative proceedings or investigations. It is important to obtain the broadest possible definition of "claim."

The underlying premise of a claims-made and reported policy is so insurers can limit their liability to only those claims that are made against the insured during the policy period, and that are reported to the insurer during the same policy period. The matching of a claim made against the insured and its requirement to report the claim to the insurer during the policy period enables the insurer to "close the books" on expired policies.

Unfortunately, when an executive is faced with an allegation of wrongdoing, his or her initial instinct is generally: "I'll fix this problem myself before it gets out of hand." Or "I'll make it go away." In large part, it is this kind of independent and decisive thinking that makes people successful executives, but when things don't work out as planned, it also is the single-largest reason why insurance carriers successfully deny D&O liability claims.

Additionally, the breadth of the definition of claim can cause problems for the insured. A company may know to provide notice of a complaint to its insurer. However, a company may not realize that an angry letter may contain a demand and...

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