E=[mc.sup.2]: Equation for an exceptional-value policy.

• Author: WEISS, STEPHEN J.
• Position: Brief Article

Negotiate, negotiate, negotiate your off-the-shelf D&O liability policy - and you can more than double its value.

WHAT PROVISIONS should be changed, deleted, or added to so dramatically enhance a policy's value? Although the full list is too long for this space, you can achieve excellent results by using just three negotiating concepts. To help you better remember these concepts, I've adapted them to fit the most famous equation of all time, Einstein's E=[mc.sup.2].

In the D&O version of this equation, E represents an Exceptional-Value Policy, and the goal of maximizing value is achieved by modifying definitions, changing exclusions, and cutting restrictive conditions. Here are examples of how we have used these concepts in actual negotiations with insurance companies.

Modifying Definitions: Please do not think of the definitions section of a policy as a legal drafting nicety. These critical provisions determine the breadth of the policy's coverage. You owe it to yourself to scrutinize every one, particularly "claim," "insured," and "loss."

An insurance company will not pay you one single dollar on your policy unless a claim made against an insured results in a loss. Start negotiations by seeking to expand the types of proceedings that constitute a claim. A standard definition of claim includes only civil judicial proceedings and written demands for damages. Ask that the definition be amended to include criminal, administrative, and investigative proceedings.

Next, make sure the definition of insured is expanded to include all high-exposure members of your management team who should be protected.

Finally, since punitive damage awards typically are excluded from the definition of loss and since these awards are often far larger than compensatory damage awards, ask to have punitive damages added to this definition.

Changing Exclusions: All D&O policies have exclusions. Some are blatantly unreasonable and readily spotted. Others are more difficult to detect because they are reasonable in concept but unreasonable in scope. For example, it is reasonable for a policy to provide that the insurance company will not be liable for losses attributable to an insured committing any deliberate criminal or fraudulent act. But it is not reasonable to allow an insurance company to invoke this exclusion based on a plaintiff's unproven allegations or the insurance company's suspicions.

It is essential that the policy expressly provides that this exclusion may...