D&O Insurance Q&A

What does D&O cover?
Actual or alleged error, omission, misleading statements, negligence, breach of duty or act while in the course and scope of duties.
What doesn’t D&O cover?
(1) The uninsurable such as insider trading; (2) other insurance such as dishonesty or E&O; (3) beyond an industry’s capacity such as nuclear, and (4) underwriting judgment, which includes items such as one insured suing another and litigation started prior to the policy.
Who can bring a claim?
Anyone, including shareholders, competitors, vendors, clients, creditors, governmental agencies, owners of acquired businesses and more.
Who can a claim be brought against?
Directors and officers, including their estates, heirs, legal representatives, spouses, ex-spouses and even the corporation itself.
Why would someone sue me?
(1) A shareholder believes a director and/or officer has diminished the value of the company and therefore their holdings.
(2) A competitor believes your firm competed unfairly.
(3) A vendor is dissatisfied with the agreement between your company and their firm.
(4) A creditor feels a director and/or officer did not properly protect the assets of the company.
(5) A governmental agency finds violation of regulatory procedures.
(6) An acquired business with owners that feel they received insufficient value.
How much money might I have to pay to a victorious claimant?
If the case goes to trial, you can expect defense costs to exceed $100,000. Even if you do not go to trial, average defense costs average $45,000.
What is paid for by a D&O policy?
Defense costs, judgment or settlements and punitive damages where insurable.
How much will my policy pay?
Up to the coverage amount purchased, including defense costs for the entire policy period regardless of the number of claims.
How does retention work?
There is no retention if the corporation is not permitted to indemnify the directors and officers for a claim. If the policy does permit the corporation to indemnify the individuals, it will pay up to the limit of liability in excess of the retention amount. For example, a $1 million policy with a $5,000 retention will pay up to $1 million excess of the first $5,000 of loss. You only pay the first $5,000 of any claim.
How does my retention compare to other insureds?
Most D&O policies have at least a $25,000 retention. ECC Insurance Brokers negotiates lower retentions and sometimes $0 retention if EPL is also purchased.
The insurance company has to defend me, right?
Yes, if the policy is written on a duty-to-defend basis. If not, you must make arrangements to find an attorney and manage the litigation yourself. Most D&O policies can feature a duty-to-defend option.
What if I have an excellent attorney?
You are free to use your attorney if you choose as long as you get the consent of the insurance company first. The attorney must be qualified to handle such matters.
If several of us are sued but only one of us was dishonest, are we all excluded?

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Is there coverage if I have an offering of stock?
Yes, as long as it is a private offering and does not exceed $50 million. If you plan a public offering, you should advise us as soon as possible so we can provide coverage.
What if we acquire another company?
That company is automatically covered unlike with most other policies, which have an asset size test.
What is a hammer clause and why is it negative?
If the insurance company wants to settle a claim that you feel would be an admission of guilt and prefer to continue fighting instead, the underwriter can exercise its ‘hammer’. This clause requires you to pay any amounts in excess of the proposed settlement.
When should I report a claim?
We recommend reporting a claim as soon as possible. Even if there is not an actual claim, it is beneficial to report any occurrence to your underwriter. However, you are only required to report a claim before the policy expires. So if the expiration is January 1st, you can file a claim on December 31st.