The 2012 PLUS D&O Symposium continued with a panel that focused on D&O claims activity in the private company and non-profit space. Traditionally, these sectors of the market have comprised the vast majority of the D&O universe, and the types of claims that tend to arise under these polices have not significantly changed for a generation. Modern trends, however, are highlighting the fact that claims against private companies and non-profits present potentially costly exposures.
The panel shared anecdotes suggesting that private company exposure is increasing. Most of the increased exposure arises out of traditional breach of contract claims and business torts such as claims for tortious interference in a contractual relationship. Increased SEC enforcement activity and claims arising out of cash-out mergers and acquisitions are also concerns. The panelists observed that, in this claim environment, carriers are often being asked to write coverage against these types of claims with significant limits in very short periods of time – often 24 hours or less – with an M&A deal frequently riding on the carriers’ issuance of a D&O policy. The panel suggested that what carriers often do not realize is that their decision to issue a policy, made quickly and with minimal information, typically functions as the equivalent of putting capital into the company seeking the coverage, because D&O policies are increasingly being called upon to pay, or at least to defend, claims that increasingly attend almost any transaction.
In the private company space, the types of claims being seen may be divided into two broad categories. The first category is of claims brought by shareholders whose interest in a company is diluted by a deal, while management allegedly benefits handsomely. The second category is of claims involving a wind-up and sale of a distressed company, where common stockholders allegedly receive much less out of the transaction than bond holders and preferred stockholders.