In today’s business climate of corporate transparency and accountability, an organization’s officers and directors face a myriad of employment-related exposures.
Large corporations and privately held companies, including non-profits, are not exempt from litigation arising out of the management decisions of their boards. Regardless of your company’s size, the legal cost to defend a director is substantial, as are the potential personal penalties. Due to the personal liability risk which is not covered under a personal insurance policy protecting boardroom talent can be a challenge. To help ensure both your officers’ and company’s well-being, a directors’ and officers’ liability insurance (D&O) policy is part of a comprehensive risk financing strategy.
D&O Fills the Coverage Gap
Unlike a commercial general liability policy that provides coverage for claims arising from property damage and bodily injury, a D&O policy specifically provides coverage for a “wrongful act,” such as an actual or alleged error, omission, misleading statement, neglect or breach of duty.
Directors & Officers Market Place is quickly tightening up and we are experiencing a trend of additional exclusions as well as no prior acts coverage. Here is the trend that we are experiencing with exclusions:
- Bankruptcy/Insolvency – due to lack of revenue flow, many carriers are adding this exclusion to avoid any bankruptcy related claims in the event a company can no longer operate.
- Breach of Contract Exclusion – related to above, any debts owed to vendors or breaches of contract can lead to additional claims and are Covid-19 related.
- Failure to Maintain Insurance Exclusion – if the board of directors does not have coverage under any other policies, such as GL, Property, etc…, D&O is typically targeted because it was the decision of the company. This exclusion provides zero intent to respond with coverage under these circumstances.
- Absolute Bodily Injury Exclusion – carrier is noting that they want absolutely nothing to do with anything health related, especially during Covid-19 and our current pandemic. This is concerning to have for a board of directors in any medical profession.
Prior acts is related to unknown circumstances in the past that might rise to a claim. Traditionally with D&O policies, you would be granted what we call “Full Prior Acts”. That means any decision you made since inception of company would be covered for a claim made currently as long as you were not aware that it would become a claim. Most carriers are no longer offering Full Prior Acts and instead are only offering “Retro Date Inception” policies. That means you only have coverage for the decisions you make from the date you purchase coverage and moving forward. Obviously this is a major concern with all of the past decisions previously made related to Covid-19, closing operations, social distancing, etc.
There isn’t a single market that we recommend but rather we use a plethora of companies that do not provide any of the exclusions above or force policies to be Retro Date Inception. With everything that is going on, our carriers are not providing exclusionary language specifically to Covid-19 and/or pandemic issues. This is where we can add our value to clients in all industries during these difficult times.
If you have any questions regarding this exposure or any other business exposure please reach out to Sophia Najjar at CIA Insurance and Risk Management for all your insurance needs.
Post provided by Sophia Najjar, President | Commercial Risk Management (CRM)
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