Not a Commodity: D&O Insurance

D&O insurance policies are not commodities.  While every company that wants to protect itself and its directors and officers from liability exposure probably buys a directors and officers liability insurance policy, all policies are not created equal.  Finding out exactly what a particular policy covers—and leaves uncovered—is critical.  It’s all too easy to purchase expensive insurance that isn't right for a particular company’s needs and fails to take into account important business issues.

Firms, individuals taking control and inquiring about coverage 
More and more, directors and officers “get it.”  The most recent Towers Watson survey on D&O insurance found that directors and officers were more likely to ask about the amount and scope of their coverage in 2012 than they were in 2011. A record 80 percent of survey respondents representing publicly traded companies said their directors and officers inquired about coverage amounts and costs in 2012. A record 70 percent of survey respondents representing private and non-profit companies noted that their directors and officers had questions about coverage in 2012. Passive no more!

So what were the questions? Per the survey, organizations are increasingly taking very specific concerns into account as they inquire about coverage, including direct shareholder or investor lawsuits and derivative shareholder or investor litigation. Eighty-three percent of respondents ranked regulatory claims as a top liability concern.  This is a particularly tricky area for insurance coverage (more on this in a future blog), making this inquiry an especially important one—especially for companies in highly regulated industries.

What coverage do you really have?
Don’t ask your insurance broker to explain specific clauses—it’s not that useful unless you work in insurance regularly. Rather, the best way for directors and officers to find out what coverage they have is to ask questions about the risks they face. For example, “If someone lies on the insurance application, am I still covered?” or “What happens if we go bankrupt and I’m sued by the creditor’s committee.”  These are the sorts of questions that get to the heart of the coverage you do, or don’t have.  And what if your broker can’t answer these types of questions? Well . . . time to find a new insurance broker.

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: phuskins@woodruffsawyer.com.