What are some of the current trends that are leading to litigation?
The financial credit crisis led to many lawsuits in the financial institution, real estate, mortgage and insurance industries. Companies that deal with regulatory agencies such as the FDA or the HHS must constantly deal with risk related to compliance requirements. With globalization of companies, we see increased risk in FCPA, M&A and due diligence when moving into a new country. Institutional investors continue to be activists in the corporate governance area, and opt-out suits do not seem to be subsiding.
How can an organization determine what D&O insurance is right for them?
The limits purchased often depends on the comfort level of the board. Board members, especially independent directors, want to ensure that they are protected. Your broker will work with you on this decision by using analytical tools, including a potential loss scenario using market cap losses, claims trending information and proprietary benchmarking. A company should also look ahead when deciding upon limits to purchase, taking into consideration any major changes that could occur, such as acquisitions.
It is also important to review policy terms and conditions. All policies are not created equal. A policy that denies a claim will not be positively viewed when called upon by a director or officer after a lawsuit. It is important to work with a broker that has the expertise with the specialized language needs and the market position to get it negotiated.
What specific products should companies look for when considering D&O insurance?
Companies should consider a product that is commonly called Side A DIC. This product is specifically provided to the directors and officers when the company isn’t permitted, required or able to indemnify them. This can be critical if your primary insurance wrongfully denies a claim, if other insurance has been used up by a different lawsuit, if any of the insurance companies providing your insurance become insolvent, or if your board wrongfully refuses to indemnify you.
How often should an organization review its coverage?
Every single year — it’s an evolutionary product, an evolutionary litigious environment and companies are always changing. It should not be a product that you buy and just renew as is.
Anna Adams is the managing director of the Financial Services Group at Aon Risk Services, Inc. Reach her at (216) 623-4122 or [email protected].
