5 major myths: many directors and officers have misconceptions about their D & O insurance coverage. Here are the facts.

• Author: Weiss, Stephen J.
• Position: Directors' and officers' liability insurance

D & O INSURANCE typically is a multimillion-dollar asset intended to protect the treasury of a company and the personal assets of its directors and officers. Despite its importance, many executives have fundamental misconceptions about this risk transfer product. To help dispel these misconceptions, we compiled a list of the more common myths and provide you with the facts.

D & O Myth No. 1 -- All D & O policies are the same

Facts: D & O policies are not all the same. Unlike some other types of insurance, there is no standard D & O insurance form. More than 30 insurers offer D & O insurance, and each insurer's form is unique. Some even offer multiple forms, each with a different coverage focus. Even basic provisions, such as which individuals and what wrongful acts are covered, can vary among forms.

To be sure that you have the best policy for your needs, you need to know not only what your policy covers but also what protection is available from other insurers in the D & O marketplace.

D & O Myth No. 2 -- D & O policies are non-negotiable

Facts: D & O policies are highly negotiable. If you are not aggressively negotiating coverage enhancements to your policies each year, you will not be maximizing the value of your insurance dollar.

D & O Myth No. 3 -- It is better not to report some claims

Facts: Typically, insureds must report all claims to all policies in a D & O program. Notwithstanding this unambiguous requirement, some insureds believe it is better not to report certain claims, especially those they do not expect to exceed the applicable retention. Insureds often believe that reporting fewer claims will result in lower premiums.

Sooner or later, a claim you expect to be resolved for a nominal amount will blow up into a more serious situation. At that point, it may be too late to give timely notice to your insurers. Worse yet, the original claim may spawn a significant related lawsuit. If you did not give timely notice of the original claim, you could also lose coverage for the related claim as well.

Failure to report a claim also creates a potential rescission hazard. Underwriters use claim history to evaluate risk. If you omit your claim history from your application, your underwriter cannot underwrite properly. When the true claim history eventually comes to light, your insurer will likely argue that there was a material omission in the application and will try to make a case for rescission of the policy.

The bottom line: You...