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Today’s Speakers

Moderator –

Panel:

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The Need for D&O Insurance

The Need for D&O Insurance

• Class Action claims• Shareholder actions• Employee claims

The Need for D&O Insurance

• Merger & Acquisition claims– Inherent conflicts of interest– Duty to shareholders to ensure fair/maximum share

price– Protect best interest of corporate entity– Self-serving interest of preserving personal jobs and

security– Bump-up claims

The Need for D&O Insurance

• Third-party claims–Creditors–Customers–Vendors and suppliers–Competitors–Government

The Need for D&O Insurance

• D&O insurance benefits:– Costly defense expense payment– Provides coverage for non-indemnifiable loss– Protection of personal assets– Allows Ds & Os to remain focused on managing the

company– Enhances the recruiting efforts of qualified outside

directors– Balance sheet protection

D&O Policy Components

D&O Policy FeaturesCommon Insuring Agreements:

Insuring Agreement A• Company pays Loss on behalf of the Insured

Persons resulting from Claims against Insured Persons for Wrongful Acts except for Loss which the Insured Organization pays as indemnification

Insuring Agreement B• Company pays Loss on behalf of the Insured

Organization resulting from Claims against Insured Persons for Wrongful Acts which the Insured Organization pays as indemnification and Loss resulting against the Insured Organization for Wrongful Acts

Insuring Agreement C• Company pays on behalf of Insured Organization

for Wrongful Acts

D&O Policy FeaturesImportant definitions:

– Claim– Insured– Insured Persons– Insured Organization– Subsidiary– Loss– Defense Expenses– Wrongful Act– Outside Directors (Outside Entity and Outside

Position)

D&O Policy Features

Important features:– Final adjudication v. finding in fact– Absolute v. “for” language– Severability of Exclusions– Retentions– Limit of Liability– Claims Made Extension clause– Cancellation Clause & Non-Renewal– Changes in exposure– Extensions– Conditions

D&O Policy Features

Common features:– Punitive damages – most favorable jurisdiction– Modified Defense and Settlement– Third-Party discrimination – sexual harassment and

discrimination– Private placement coverages– Acquisition threshold amended to 25%– Pollution Exclusion – Insuring Agreement A– Leased Employees and Independent Contractors

coverage

D&O Policy Features

Common Exclusions:– Bodily Injury/Property Damage– Pollution– Prior and Pending Litigation– Prior Notices– ERISA– Nuclear– Antitrust– Plagiarism, Copyright– Insured v. Insured

D&O Policy Features

Common exclusions:– Outside Director Liability – Insured v.

Insured– Subsidiary Prior Acts– Contractual– SEC– Dishonest/Fraudulent Acts– ADA compliance expenses– ERISA/Employee Benefits– Future pay in failure to rehire situation

SAMPLE D&O CLAIMS

D&O Claim ExamplesClaims Example:

– The officer of a small electronics company solicited and then hired four employees from a large conglomerate’s subsidiary. The subsidiary manufactured and sold electronic switches. Subsequently, the small company began selling similar electronic switches, but at a substantially lower price. The conglomerate filed suit alleging the officer and his company had misappropriated trade secrets and customer lists by hiring its former employees. After two and a half years of litigation, the case was settled for more than $1 million. Defense expenses for the officer alone were approximately $500,000.

D&O Market

D&O Market

Types of D&O Policies/Insureds• Publicly owned (stock companies & public

debt)• Privately owned• Not-For-Profit• Government controlled• Financial Institutions

D&O Market

• Market conditions:– Package policy approach is common– Significant competition– Centralized v. local markets– Broad policy terms– Loss control services available

How To Sell D&O

Selling D&OWhy do Main Street (Private Companies) need D&O Insurance?– Exposures from customers, clients,

ratepayers, students and consumers:• Extension/refusal of credit• Debt collection (including foreclosure)• Lender liability• Deceptive trade practices• Trade restraint• Dishonesty/fraud• Cost/quality of product/services issues

Selling D&O

Why do Main Street (Private Companies) need D&O Insurance?

– Exposures from other third-party claimants• Environmental/safety• Fiduciary duty breach• Contract disputes• Other third-party claimant issues

Selling D&OWhy do Main Street (Private Companies) need D&O Insurance?

– Exposures from competitors, suppliers and other contractors• Antitrust• Copyright/patent infringement• Contractual disputes• Deceptive trade practices• Business interference• Creditor

Selling D&O

Why do Main Street (Private Companies) need D&O Insurance?– Exposures from governmental and

regulatory agencies• Antitrust• Dishonesty/fraud• Other governmental issues

Underwriting D&O

• What is the underwriter looking for?

Underwriting D&O

• Asset Size• Employee Count

Underwriting D&O

• Industry–High-tech/bio-tech–Financial institutions–Retail–Manufacturers–Professional organizations–Non-Profits

Underwriting D&O

• Geographic location

Underwriting D&O

• Ownership–Public–Private–Private Placements

Underwriting D&O

• Financial condition–Balance sheet–Income statement–Financial statements notes

Underwriting D&O

• Management–Experience–Length of services–Track Record

Underwriting D&O

• Corporate structure–Board–Officers

Underwriting D&O

• Claim history

Questions/Comments

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