Although properly negotiated traditional D&O coverage is the building block of any D&O insurance program, such coverage presents certain unavoidable risks, even when properly negotiated. First, coverage for the corporation can exhaust available limits, leaving directors and officers without coverage. Second, a bankruptcy court could determine that policy proceeds are assets of the estate, and prohibit payment to the directors and officers under the policies. And third, innocent directors could lose coverage because of misrepresentations, illegality, or deliberate fraudulent conduct of corporate insiders.
New D&O insurance products address some of these issues. Side A-only excess coverage cannot be exhausted by payments to the corporation and is beyond the grasp of bankruptcy courts, since none of its proceeds are paid to the corporation. Independent Director Liability (IDL) coverage is designed to cover independent directors in situations where other coverage is unavailable due to the adverse conduct of corporate insiders.
Unfortunately, unlike other types of business insurance, there is no standard D&O insurance policy form for any of these D&O insurance products, and there is significant variability in language contained in various D&O insurance products. The immense impact that this variability can have on the personal wealth of directors and officers is illustrated in the following “top ten” list of D&O insurance issues
For the 10 tips, click here.
