This directors and officers coverage is available from many insurance carriers. Each carrier usually specializes in a particular industry and therefore the forms of each company may vary. Our Professionals deal with each of these companies and custom tailor a program specific to each client.
Standard limits for most small to medium sized organizations start at $1.0 million, but most public companies buy at least $5.0 million in coverage. Companies typically buy and individual claim amount and an aggregate. For example, a minimum policy may be a $1 million/ $2 million policy. This means that the insurer will pay a maximum of $1 million for any one claim, but will pay an aggregate amount of $2 million in the given policy year. They could mean a million dollar claim and 10 $100,000 claims.
RELEASE OF NON-PUBLIC INFORMATION
The SEC requires companies to abide by specific procedures as to when and how company information is disseminated to the public. Without a specific written plan, D&O’s can be held liable for the effects of releasing such information. The SEC imposed both criminal and civil penalties, depending upon the situation. Even though D&O insurance will not protect an individual for criminal behavior, these policies are designed to protect the company’s assets and other Directors and Officers in the event of such an occurrence.
MAKE SURE THE POLICY COVERS THE COMPANY ITSELF
Most D&O policies provide coverage for an individual Director or Officer (Usually Coverage Part A) and Coverage for the Company’s indemnification of a Director or Officer (Coverage Part B), however, do not cover the actual Company in a D&O suit (Coverage Part C). You should make sure that the Coverage Part C for the “Entity” is included in the policy
DO YOUR BY-LAWS INDEMNIFY THE D&O’S?
A D&O policy is triggered by the policy holder’s (The Company’s) legal obligation to defend a case or pay a settlement. If your D&O’s are not indemnified in the Corporate By-Laws, the company has no legal obligation to defend the D&O’s and therefore, even though the company may have a policy, no coverage may be available.
DOES YOUR POLICY SEGREGATE DEFENDANTS?
Most D&O policies will exclude coverage for Fraud or other Criminal Activities. Although, insurance policies should not provide defense for Criminal actions, it should provide defense for the Company and other innocent parties that might be pulled into a lawsuit due to a criminal action on the part of someone else. Without a segregation clause, the other defendants may not be without any coverage if one of the other D&O’s or even an employee commits a criminal act.
DOES YOUR POLICY COVER FINES, PENALTIES OR PUNITIVE DAMAGES?
The actual settlements for large D&O cases involves not only actual damages, but punitive damages. In a recent case, we noted a $30,000 actual damage verdict with $6.9 million in punitive damages. Most policies specifically exclude punitive damages.
EMPLOYMENT PRACTICES LIABILITY
Most D&O policies can provide some form of coverage for Employment Practices Liability relatively inexpensively. This coverage is not as comprehensive as a stand alone policy and usually has a high deductible with less actual coverage. You should review your own needs.