Say you’re on the board of a company, and you have a growing number of disgruntled shareholders who are complaining about the directors’ and officers’ recent decisions. No claims have been brought against the corporation or the Ds and Os yet, but it feels like something is on the horizon. What’s your next move?
In the event of litigation against Ds and Os, you expect your D&O insurance policy to respond. In this post I will discuss four items that can make a major difference in the efficiency and efficacy of your insurance recovery process.
1. Know your Defense Options Under the Policy
The first step in preparing for a claim happens when the policy is first negotiated and placed. Private companies have to choose between duty-to-defend and duty-to-indemnify policies. Public company policies leave the defense of the claim to the insured (duty-to-indemnify), but some policies have strict restrictions on whom you can use for your defense counsel in the event of a claim. Depending on the type of claim, you may be limited to a very specific list.
To be proactive, at the time the policy is being negotiated talk to your broker about how you’d like to handle the defense of future claims. A carrier that has a strictly enforced “panel counsel” list will be unwilling to amend the list after the policy is bound. If the carrier’s panel counsel list doesn’t include your favorite defense attorney, and the carrier will not add this person to the list, then you may want to consider using a different insurance carrier.
An interesting variation on the mandatory panel counsel concept described above is when a carrier offers its insured a discount on the self-insured retention (i.e. deductible) if the insured uses an attorney on the panel counsel list. The dollars at stake can be significant.
Even if there isn’t a particular list, your carrier may have a view of what is reasonable to pay for outside counsel. They may also have surprisingly specific litigation guidelines. These are good items to explore before your insurance coverage is bound.
Finally, remember that your carrier usually has the right to approve (or not) your choice of counsel. This is another reason to discuss sooner than later who your counsel is likely to be if you are sued.
2. Call Your Insurance Broker as Soon as There’s a Threat
Don’t wait to call your broker until after the claim hits – as soon as you’ve discovered threats of any kind, make the call. This gives your broker an opportunity to give you timely advice about aspects of the policy you should be aware of given your particular set of facts.
Another thing to consider is how far away you are from renewal when the threat of a claim arises. Too often Ds and Os are not sensitive to the fact that if a claim is about to be made in the midst of the renewal process, disclosures about the situation have to be made to the insurance carriers. Moreover, there are steps that need to be taken to ensure coverage exists even after the policy renews, notwithstanding the fact that you as the insured had knowledge of the potential claim prior to the renewal date.
Finally, remember that the definition of a “claim” under an insurance policy may be broader than you think. In some cases, for example, there may be coverage for defense costs for things like informal governmental inquiries of individuals, something we often don’t think of as a “claim.” For this reason, you’ll want to ascertain the scope of your particular policy’s definition of claim sooner than later.
3. Understand Pre-Tender Expenses and Carrier Consent
When a claim is looming, and especially after it hits, companies are usually off to the races with their defense counsel as they handle myriad complex issues that will arise in rapid succession. This is expensive work—and it’s work you want to be recognized under the policy.
The trigger for a carrier’s obligation to make payments under your D&O insurance policy is notice of the claim. You’ll want to notice your carrier and obtain consent for your choice of counsel as soon as possible. In some cases, the policy may explicitly state that the carrier is not responsible for fees incurred before you noticed the carrier. This may include not acknowledging that bills incurred pre-notice count toward the erosion of your self-insured retention. In all cases, carriers are friendlier to bills they know are coming.
Carrier awareness and consent are also critical when it comes to settling a claim. If you are going to settle for more than the self-insured retention, which is to say the carrier will have to pay, then at a minimum your policy will require that you not admit liability and/or agree to a settlement without your carrier’s consent. Some polices are even more strict, requiring that you not even enter into a settlement negotiation without the consent of your carrier. In addition, most policies require that you allow your carrier to effectively associate with you on the defense and settlement of your claim. The policy also requires that you cooperate with your carrier.
4. Keep in Touch with Your Insurance Carrier
Finally, to keep your claim on track, keep in regular touch with your insurance carrier. Schedule routine updates on a quarterly basis or other timeline that makes sense for your particular situation.
There’s no need to over bake this effort, as it’s not meant to be a waste of time; however, having regular calls is a good way to keep the carrier informed – even if it’s just to say “there’s nothing to report at this time.” What you don’t want is for the case to have moved forward rapidly without your carrier’s knowing about it.
Pick Your Battles
Claims are always tough, and there can be difficult issues. There’s no need, however, for the basic blocking and tackling of claims management to be one of these tough issues. If you make a misstep, a good insurance broker might be able to keep the misstep from reducing your insurance recovery. However, this uses up a carrier’s goodwill, goodwill that may be better spent on bigger, tougher issues that may arise later in your litigation.
The views expressed in this blog are solely those of the author. This blog should not be taken as insurance or legal advice for your particular situation. Questions? Comments? Concerns? Email: firstname.lastname@example.org.