Tapping the expertise of D&O insurance brokers: a global understanding of exposures is crucial.

• Author: Brew, Damian
• Position: SPECIAL REPORT

LEGAL ISSUES surrounding liability of directors and officers of publicly traded companies have never been more intricate. The current climate is a culmination of many factors, including the recent financial crisis and persistent global economic recession. Directors and officers confront increased scrutiny from shareholders and media, the task of navigating numerous, complex laws and regulations, and operating in the glare of intensifying regulatory oversight.

These factors have fostered a multifaceted and high-stakes claims environment in which directors and officers confront enormous challenges bringing closure to litigation and face the potential of much higher total settlement values.

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A global understanding of these emerging exposures and how they can best be addressed in the D&O policy is crucial. While superior corporate governance and savvy legal counsel are often perceived as the best means of tackling the risk of D&O liability, vital assistance is also available through an oft-overlooked service provider, the D&O broker. The value a broker brings to the claims process--in negotiating broad policy terms and conditions and then helping to maximize recovery after a claim is filed--can prove invaluable.

Brokers try to match the right insurance markets with each client's particular risk profile, but this is not a "once and done" process since risks and markets are constantly evolving. The claims process begins with the coverage. To give a real world example of this, during the time a claim is underway the advancement or reimbursement of defense costs can be a major issue for the insureds. When directors become defendants in lawsuits, they obviously want to retain counsel right away, and this means incurring defense costs. In a typical scenario, the company will advance such costs to the director on an ongoing basis and then seek recovery from the D&O insurer. Where the company is insolvent, however, directors will need to look directly to the insurer to pay these costs. We have negotiated policy language requiring the insurer to respond immediately if the company does not pay defense bills within 30 days of a request by the director for the reimbursement of those costs. This language has helped to eliminate potential disputes with the carrier that might arise over the advancement issue under...