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Directors and Officers Liability Insurance (D&O) protects an organization from claims by an outside 3rd party that the board members are not acting in the best interest of the organization. Key operations that need D&O coverage are publicly traded stock companies - allegations from shareholders; Non-profits – allegations from contributors of money; and any private company that has outside investors.
* D&O protection extends to the personal assets of the director and officer as well as the spouse and assets of their estate.
* D&O allows the directors and officers to concentrate on running the business and not diverting their attention due to protracted and costly litigation.
* D&O can include coverage for Employment Practices Liability (Harassment, Wrongful Termination or Discrimination).
* D&O provides protection to the directors and officers in the event of a claim when the company is insolvent or if the company’s charter and bylaws do not provide adequate indemnification for its directors and officers.
D&O policies are written on a claims made (C-M) basis rather than an occurrence basis. The difference between C-M and occurrence is that when a claim is made under an occurrence policy, the policy that is in force at the time of the occurrence is the one that pays. With a claims made policy, the claim must be made and occur during the policy term. The key to a C-M policy is to make sure your ‘retro’ date is always the same date as the very first C-M policy under which you were covered. If this is not the case, you could have a gap in coverage, even if you have continuously carried D&O insurance.
Example: Retro date 1-1-03 Policy effective dates 1-1-07 to 1-1-08, Claim occurs 6-5-05, Claim made 4-1-07 – Yes there is coverage, the claim occurred after the retro date and was made during the policy term.
Example: Retro date 1-1-07 Policy effective dates 1-1-07 to 1-1-08, Claim occurs 6-5-05, Claim made 4-1-07 – No coverage because the claim occurred prior to Retro Date.
Please note: J. Michael Low is a former AZ Director of Insurance, and is the founding partner and an attorney with Low & Childers, PC of Phoenix, AZ. He is still practicing full time and has agreed to help Low & Johnson on certain coverage and claims issues relating to insurance. He is not issuing legal opinions or legal advice on behalf of Low & Childers. Mr. Low is a licensed property and casualty producer in the state of Arizona.
Any questions please give me a call or e-mail. Also, we keep the insurance tips newsletter an various topical insurance issued posted on the Low & Johnson web site www.lowjohnson.com.