I know I am on vacation. But in checking my email deliveries this morning, I saw yet another article that made me think about the need of corporate risk managers (or whoever is tasked with purchasing D & O insurance)to think of all possibilities and permutations of those seemingly never-ending lawsuits against Ds& Os.
I saw this morning that the Ds & Os of Lyondell Corporation, now in bankruptcy,are facing problems getting the coverage that the company purchased to protect them. The creditors committee, in large part one of the instigators of the suits against them, has asked the bankruptcy court for some protection against the use of the insurance on behalf of the directors because, the argument runs, that insurance is the asset of the estate. Of course, we know that the company, like almost all companies, primarily acquired the insurance to protect its Ds and Os, and not itself, except to the extent it was legally obligated to indemnify them. With bankruptcy,that is now impossible without much effort.
So along come the creditors and try to pressure the Ds & Os with the threat of limiting their coverage. This may be perfectly proper in love and war and I am not castigating them for pursuing whatever rights they may have under those policies. But this effort demonstrates that it is not only the insurers that can cause a company's directors and officers to forego the coverage they thought they had to protect themselves.
There is an important lesson here. When the company is acquiring its D&O coverage (or when a potential director is reviewing the coverage that has been obtained for her protection), it needs to evaluate exactly what happens in the event of bankruptcy. It needs to negotiate, if at all possible, for contractual clauses that provide coverage for the Ds and Os separately and independantly and that cannot be interfered with by the Company in the event of its bankruptcy, and thus not by the creditors who now control the fate of the company.
Remember, that D&O coverage, unlike general liability policies, are not very uniform and diffent companies offer different terms either by endorsement or even within the basic form itself.
There are many issues with D&O coverage that need to be thought about and negotiated. This is just one twist to keep in mind.
I saw this morning that the Ds & Os of Lyondell Corporation, now in bankruptcy,are facing problems getting the coverage that the company purchased to protect them. The creditors committee, in large part one of the instigators of the suits against them, has asked the bankruptcy court for some protection against the use of the insurance on behalf of the directors because, the argument runs, that insurance is the asset of the estate. Of course, we know that the company, like almost all companies, primarily acquired the insurance to protect its Ds and Os, and not itself, except to the extent it was legally obligated to indemnify them. With bankruptcy,that is now impossible without much effort.
So along come the creditors and try to pressure the Ds & Os with the threat of limiting their coverage. This may be perfectly proper in love and war and I am not castigating them for pursuing whatever rights they may have under those policies. But this effort demonstrates that it is not only the insurers that can cause a company's directors and officers to forego the coverage they thought they had to protect themselves.
There is an important lesson here. When the company is acquiring its D&O coverage (or when a potential director is reviewing the coverage that has been obtained for her protection), it needs to evaluate exactly what happens in the event of bankruptcy. It needs to negotiate, if at all possible, for contractual clauses that provide coverage for the Ds and Os separately and independantly and that cannot be interfered with by the Company in the event of its bankruptcy, and thus not by the creditors who now control the fate of the company.
Remember, that D&O coverage, unlike general liability policies, are not very uniform and diffent companies offer different terms either by endorsement or even within the basic form itself.
There are many issues with D&O coverage that need to be thought about and negotiated. This is just one twist to keep in mind.
