Tag Archives: D&O

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D&O Insurance: The Cooperation Clause and Privileged Communications

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Directors and officers and the insurance companies that insure them often have a complicated relationship that can be both cooperative and adversarial. And as Richard Giller of Alston & Bird LLP explains in an online exclusive article, this relationship becomes even more complicated in the face of a lawsuit that strains the parties’ ability to communicate. He discusses how this effects the cooperation clause of the policy and the ramifications of sharing confidential or privileged information with a D&O insurer.

Because sharing information with a D&O carrier may be critical to assist in the evaluation of liability risks, the cooperation clause had been described as a material provision of the policy and a condition precedent for the insured’s rights under the policy. A breach of the cooperation clause that causes actual and substantial prejudice to the carrier may operate to relieve the insurer of liability under the policy. Thus, the risks associated with the failure of a policyholder to cooperate could be catastrophic.

Giller also offers useful strategies that policyholders and carriers could employ in order to maintain the confidential nature of their communications, including joint defense and confidentiality agreements. So be sure to check out his interesting and informative article, only on RMmagazine.com.

D&O Liability and Climate Change

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With climate change increasingly becoming a hot-button issue in courtrooms and among regulators, the risk that directors and officers may become the targets of  lawsuits based on their companies’ climate change-related disclosures is becoming more likely. In an online-exclusive article for Risk Management, attorneys William Passannante and Alex Hardiman of Anderson, Kill & Olick examine this issue and offer some insight into how companies should respond to this growing threat.

The increased regulatory activity and private litigation activity surrounding the climate change issue suggests future increased liabilities. While the treatment of liability for climate change related issues by the courts and governmental entities is in an early stage of evolution, the liability and regulatory machinery are grinding forward. Ensuring that corporate indemnities and insurance are in place to respond is an important step.

For more on this emerging risk, read the complete article, only on RMmagazine.com.

Does Obama’s 3rd Year Mean Lower D&O Prices?

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Yesterday, Aon released its quarterly D&O pricing index, finding that the average price for $1 million in coverage limits increased 4.9% from the first quarter of 2010 and, more importantly, that D&O pricing decreased 16.4% in the second quarter as compared with the same quarter in 2009. According to the report, this is the largest decrease since the fourth quarter of 2007 and the second consecutive double-digit decrease.

As for D&O securities class action claims activity, Aon found that, for the second quarter of 2010, the average D&O securities class action settlement was $39.87 million (excluding settlements of $1 billion or greater). This is an increase of almost 28% from the preceding three-year average settlement value of $31.18 million.

The report makes an interesting point in terms of mitigating factors for D&O pricing.

We all know that D&O pricing and the stock market are inversely correlated. Meaning, when the stock market goes up, securities class action litigation tends to decrease, and D&O prices go down.

But have you heard of the presidential election year cycle and its effect on the stock market (and thus, D&O pricing)?

The report cites Mark Hulbert, founder of the Hulbert Financial Digest, as saying that, on average, the third year of a presidency is the most bullish of a president’s term. Hulbert researched yearly returns for the Dow back to 1896 (the year the Dow Jones Industrial Average for founded).

Here’s a snapshot of his findings:

Screen shot 2010-09-23 at 1.21.16 PM
Clearly, there is a big spike in the third year versus the others. If this theory holds true, then there may very well be continued downward pressure on D&O rates for at least the next 12 to 24 months, the report states.

In addition, Aon’s D&O Peer Benchmarking report, which was conducted jointly with NASDAQ, outlined six best practices for organizations to follow when looking to purchase or analyze their coverage:

  1. Examine the D&O policy to determine corporate executive indemnification provisions
  2. Question any generic worldwide coverage language in the D&O policy; it may be inadequate
  3. Recognize what triggers a claim under the D&O policy
  4. Scrutinize the limits of the excess policies
  5. Understand how coverage under the D&O policy is affected by the wrongful acts of others
  6. Know how the organization and the directors and officers are protected during a financial crisis

All in all, the information in the report bodes well for buyers of D&O insurance through the remainder of 2010, as the current soft cycle for D&O underwriting is expected to continue.

Maximizing Your D&O Coverage

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In these volatile economic times, solid D&O insurance coverage can be vital to protecting your company’s executives. But a top-notch D&O program has a lot of facets that need to be considered. So to that end, Caroline Spangenberg and Brian Epps of Kilpatrick Stockton have come up with a list of tips to make sure your D&O policy is doing what you need it to do.

Be diligent in the application process and negotiate the language.
Providing complete and accurate disclosures in the policy application is critical because material misrepresentations in many states avoid coverage even without proof of an intent to deceive and without having to show that the misrepresentation was related to the loss. In many states, to demonstrate materiality, the insurer need not prove that it would not have issued the policy at all – merely that it would not have issued it on the same terms and conditions or for the same premium. If the insurer succeeds in rescinding the policy on the basis of misrepresentation, it is void – there is no coverage even for innocent insureds.

Be sure not to miss their informative article, featured exclusively at RMmagazine.com.