Learning a thing or two from Rodney Dangerfield: why you should get a second opinion on your D & O insurance policy.

• Author: Weiss, Stephen J.
• Position: D & O INSURANCE UPDATE - Directors and Officers

IN THE Winter 2004 column titled "The Rodney Dangerfield of D & O Policies," the advice conveyed was that excess D & O insurance policies "don't get no respect," borrowing Dangerfield's signature line. Dangerfield died a few months later at age 82. In reflecting on his comedy routines, we were struck by how another of his famous quips applies to D & O insurance.

Dangerfield often recounted how when his psychiatrist told him he was crazy, he would respond, "Oh yeah? Well, I want another opinion." The doctor instantly replied, "Okay--you're ugly, too." The lesson is: When negotiating D & O insurance coverage, you can benefit from a second opinion, particularly if the off-the-shelf D & O policy you are offered is "ugly."

The first opinion, of course, comes from your insurance broker who recommends a particular policy, policy limits, retentions, and certain enhancements. The second opinion should come from an independent source--a lawyer experienced at negotiating D & O policies and who represents policyholders only. Consulting with a D & O lawyer can meaningfully improve your D & O program. For one thing, a D & O insurance lawyer brings to the procurement process legal training and experience that your broker, typically not a practicing lawyer, does not have. Also, an independent insurance expert by definition represents your interests exclusively.

Like Dangerfield, you can find a source for a second opinion by asking the person who provided your first opinion--your broker. He or she should be able to recommend a D & O lawyer. Or, you can ask your counterparts at other companies. These leads can be supplemented by your own research on the Internet.

A D & O Policy Is a Complex Legal Document. A D & O policy is a labyrinth of arcane legal provisions drafted by veteran insurance company lawyers. While your broker will be familiar with many D & O policy provisions and can address many issues, he or she typically is not a lawyer familiar with the intricacies and legal consequences of certain policy provisions. For example, you surely do not need a lawyer to negotiate for punitive damage coverage if the standard policy form does not provide it. But getting an insurer to cover punitive damages is only half the battle. Punitive damages are not insurable in every state. To get the benefit of punitive damages coverage, you must also negotiate for a "most favorable venue" clause, which provides that the insurability of punitive damages shall be governed...