Directors & Officers Liability Insurance

Directors and Officers liability insurance coverage has become even more important in light of recent corporate scandals such as Enron, Adelphia, WorldCom and Global Crossing, laws such as Sarbanes-Oxley, government prosecutors' desire to promote themselves by prosecuting high-profile alleged corporate wrongdoers to the fullest extent of the law, and the proliferation of trial attorneys who seek to make their personal fortunes by filing shareholder derivative actions.

Many insurance companies are attempting to avoid being left holding the financial bag when a corporation finds itself embroiled in a crisis by drastically restricting the scope of coverage available under their D&O policies. Some insurers attempt to avoid liability after the fact by asserting that policy exclusions for fraudulent or dishonest acts bar coverage. In WorldCom's case, its D&O insurer sought to rescind its policies because of alleged false and fraudulent financial statements made in its application for insurance. A settlement was eventually reached whereby coverage was rescinded as to WorldCom and its culpable directors and officers, but not as to those who were not personally involved in the alleged fraud. The insurer reserved its right to rescind coverage to the extent that a director or officer is convicted of a crime.

As a result, it is more important now than ever before for corporations and their directors and officers to become actively involved in ensuring that their D&O policies will protect their interests in the event of a crisis. While insurance brokers may claim to review policies to ensure that they meet the client's needs, let's face it – their primary expertise lies in finding the policy with the best premium. Our Insurance Coverage Group recently performed a policy comparison and analysis for a large banking and investment banking firm that was in the process of replacing a D&O policy that had been non-renewed by its previous carrier. The client's insurance broker had proposed three different carriers to issue the replacement policy. Our review of the policies revealed that one of the proposed policies excluded coverage for losses arising out of investment banking services – one of the client's major areas of business. Had the client selected this carrier, it would have been without coverage for a major portion of its D&O risk.

Vedder Price's Insurance Coverage Group offers two services in relation to D&O insurance. The first service, a D&O Policy Review and Analysis, involves a review and analysis of the client's existing or proposed D&O policy to determine whether the corporation's and its directors' and officers' interests are being adequately protected. The client receives a detailed, but easy to comprehend, written report explaining the coverage provided and highlighting any coverage gaps or concerns. The second service is a D&O Policy Comparison and Analysis. This service is performed at policy renewal, when the client is attempting to determine which of several policies proposed by its broker will best protect the interests of itself and its directors and officers. The client receives a detailed, but easy to comprehend, written report containing a comparison and analysis of the coverages offered, as well as our recommendation of the policy or policies that will best serve the client's needs. Our attorneys are experienced in directly negotiating D&O coverages on our clients' behalf with the major D&O carriers. Each of these services can be custom tailored to the client's particular needs. The Vedder Price Insurance Coverage Group has been retained by numerous large and medium sized corporations and financial institutions to provide these services.

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