According to experts, most New Year’s resolutions fail because sweeping change is difficult. Rather, the best results come from taking small steps. In that spirit, here are five (rather than 10!) small steps to take to make sure your directors’ and officers’ (D&O) coverage can tackle potentially eye-popping risks.
- Even if your company reviewed its coverage program last year, do it again this year. Endorsements, policy provisions, and pricing change from year to year to address hot market issues, such as claims from mergers and acquisitions, “me too,” data security and privacy incidents, opioids, and cannabis. If operating globally, keep an eye out for coverage for potential crises. Where possible, take advantage of potential competition and cost savings, and seek to address any new exclusions that may be baked into or added to otherwise innovative policy forms. At the very least, the due diligence will give the company and its board comfort that the company’s insurance program was thoroughly analyzed and is the best available given considerations of limits, pricing, terms, and goals.
- In addition to the primary policy, the company should review any excess and any “Side A”-only or difference-in-conditions, or “DIC,” policies. Although excess policies typically follow the terms and conditions of the primary policy, many may have different terms or exclusions depending on when the insurer was added to the program or where the insurer is located. For example, off-shore excess insurers may require mandatory arbitration of coverage disputes in a foreign jurisdiction, making it difficult to get all of the insurers in the same claim resolution forum or process in a high-exposure claim. Choice of law and dispute resolution provisions, and exclusions for prior or pending claims or claims noticed under earlier policies, may affect coverage and should be reviewed and harmonized to the extent possible. Side A policies covering only non-indemnified claims made against directors and officers can vary widely as well. Side A-only insurers may be flexible with respect to narrowing exclusions and broadening coverage. Policies covering only independent directors may also be available. Reviewing how the company’s D&O program works as a whole is well worth the effort.
- Analyze whether claims that may be excluded or only partially covered under a D&O policy may be covered elsewhere. For example, how will the company’s cyber, CGL, or property coverage interact with its D&O coverage in the event of a data breach or privacy incident? What about employment-related claims? For companies in the pharmaceutical space, how will D&O coverage respond to opioid or bodily injury claims?
- Determine your potentially highest exposure activities for 2020, and map out how coverage may (or may not) respond. For example, are any corporate transactions planned? Are regulatory investigations in the offing? Is the company exploring any uncharted new markets?
- Pay close attention to attorney–client privilege issues in the application or renewal process. Policy applications, warranty statements, renewal information, underwriting meetings, and communications with insurance brokers and others can be potentially sensitive and impactful in the event of a claim. Managing the process and information flow with an eye toward privilege can ensure greater protection.
Even if you tackle just a few of these items, you will be moving forward on the risk management front. Next up: five more small steps to take if and when a claim hits