Your D&O Policy is on Empty

When I used to work as a D&O broker for publicly traded companies, the goal was to always broaden coverage (broaden your coverage grants and narrow your exclusions). If you're trying to win business, do a coverage audit and show the client, why in this specific random scenario - coverage doesn't trigger and the personal assets of Board Members are at risk. For Brokers, it's the constant push for who can negotiate coverage better.

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D&O Insurance for Private Companies is a totally different beast. For one, D&O Insurance for private companies not only provides coverage for directors and officers (in many cases even employees), but the coverage also provides expansive coverage for the entity (outside of just the public D&O policy's entity coverage for shareholder claims). Combine this with 100% defense allocation - the policy can act as protection for a variety of legal disputes.

So, like publicly traded companies, should the goal be to provide the broadest coverage, specifically for the entity? That seems logical, right? Maybe your Counsel finds a loop hole and the CFO is ecstatic that the D&O policy is triggered. Maybe it's not a loop hole and your insurer provides expansive entity coverage for something not necessarily expected.

"Ganesh....so what's the point of this?"

The point is that the expansive entity coverage on a small $1M limit policy could deplete your policy limit and your Board is now left with minimal coverage for a true prototypical D&O claim against an individual Board Member. Your D&O policy gauge could be on "E".......

Let's play this scenario out:

• Startup Tech Company has a new Board Member
• The Board Member requires $1M of D&O insurance to protect the board member's personal assets (let's call this the piggy bank for protection).
• Company purchases $1M of this insurance
• The scenario above happens, where a Claim triggers the policy, for something that may not really be the intent of the policy....and no Executive's personal assets are at jeopardy.
• Fast forward 4 months, the policy pays for defense cost and settles the business dispute for $750K.
• That leaves all Board Members and Executives with $250K of protection. I bet that in some cases, the Board doesn't even know that the D&O policy is being depleted...(unless they have a snazzy gauge that looks like a fuel gauge at every Board meeting)

My thoughts: Always remember the intent of the policy and why it's being purchased in the first place. The less limit, the more critical this is. Focus on exclusionary carve-backs to clarify intent (excluding something, but adding a shareholder or Side A exception to the exclusion).

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NOTE:?

• This blog/article?does not intend to provide legal advice or create an attorney-client relationship. You should consult your own attorney in connection with matters affecting your own legal interests.??
• Opinions?expressed?are?solely?my?own and?do not?express the?views?or?opinions of my employer.
• I am not a broker and I don't know your specific insurance coverage. Please read the terms of your insurance policy or contact your broker for specifics.
• This is a casual post, there will be occasional typos and grammatical errors.?