Press the Refresh Button – Focusing on Important Coverages for Private Companies’ Directors and Officers
Directors and officers liability coverage for private companies has evolved over the last 10 to 15 years, and policy language and coverage has expanded and contracted with the ups and downs of the market. It’s important to hit the refresh button and remember why private companies need to buy and which coverages are most important to them.
The fundamental reason that private company directors and officers should purchase directors and officers coverage is to protect their personal assets. Private company executives could be held personally liable for their actions and can find themselves without indemnification from the organization under certain circumstances, such as financial insolvency of the corporation.
Directors and officers coverage will also protect the assets of the organization, which is crucial in the case of a family-owned business. The founder and his or her family may have spent a lifetime building a company, which is meant to provide financial security for future generations. A lawsuit could significantly impact the family’s lifelong investment.
With frequent changes to directors and officers coverage, consider some of the following key language.
Additional Side A Limit of $1,000,000 – As mentioned above, the biggest exposure an individual director or officer faces is a non-indemnified loss, which occurs when the company is unable to pay for defense costs and assessed damages. Not only will a directors and officers policy cover the defense for this “Side A” loss situation, but market-leading policies will include an additional $1,000,000 of coverage.
Broad Definition of Insured – Executives shouldn’t have to wonder if everyone who needs coverage has it. In addition to directors and officers, advisory board members, in-house general counsel, independent contractors and even employees should be included in coverage.
Duty to Defend with 100 Percent Allocation – Private companies are not in the business to defend directors and officers claims. A duty to defend policy allows the experts to defend claims so that the organization’s executives can do what they do best: run their business. One hundred percent allocation ensures that all defense costs are covered if a claim includes both covered and uncovered matters.
Final Non-appealable Adjudication in the Underlying Action Language in the Conduct Exclusions – This provision can be complicated, but in short, having this language is important because it provides for the defense of executives while upholding the principle of innocent until proven guilty.
Your clients can protect themselves with directors and officers coverage provided through Devon Park Specialty’s Executive ViewPoint (EVP) Management Liability policy. EVP not only provides the essential language stated above, it also provides additional coverage enhancements, including this unique feature:
Lifetime Occurrence Reporting Provision – Current directors and officers may be diligent about maintaining coverage, but once they leave an organization, how do they know that coverage will be renewed? A Lifetime Occurrence Reporting Provision from Devon Park Specialty protects former directors and officers when their successors elect to cancel or non-renew their coverage with us and fail to secure coverage going forward.
As the needs of private companies continue to morph in the years to come, it’s important to stay informed about directors and officers insurance policies and the coverages included. Don’t leave your clients stranded without the right coverage!
Please contact your Devon Park Specialty underwriter for more information or a quote.
As always, thank you for your support and business.
Written by Stephen Easley
June 9, 2016
Contact Rob Ling,
Executive Vice President, Chief Underwriting Officer | 844-438-6775 Ext. 2234