Since its inception nearly fifty years ago, D&O insurance has evolved into a family of products that respond differently to the needs of publicly traded companies, private businesses and non-profit organizations and their board members, executives and trustees.
The Liability of Directors and Officers, Executive Liability or Management Liability Insurance are consistent principles. However, insurance agreements, definitions, exemptions and cover options vary depending on the type of insured insurer and the risk insurer. Executive Liability insurance, once considered a necessity only for publicly traded companies, mainly due to their exposure to shareholders’ cases, is now considered an integral part of the risk transfer process for private companies and non-profit organizations.
Preparation for protection is a common goal shared by all types of organizations. In our view, the best way to achieve that goal is to involve experienced insurers, legal and financial advisors who work closely with management to further evaluate and treat this special disclosure of business risks.
Exposure to private company D&O
In 2005, Chubb Insurance Group, one of the largest D&O insurance authors, conducted a study of D&O insurance purchases on 450 private companies. A large percentage of respondents gave the following reasons for not purchasing D&O insurance:
• did not see the need for D&O insurance,
• The risk of D&O debt was low,
• The risk of D&O thinking is covered under other credit policies
Companies that respond as non-buyers of D&O insurance received at least one D&O claim in the five years prior to the study. The results show that private companies with 250 employees or more, have been the subject of a D&O case over the past five years and 20% of companies with 25 to 49 employees, have received a D&O claim.
The study revealed that 43 percent of D&O cases were submitted by clients, 29% from regulatory agencies, and 11% of non-publicly traded equity holders. The average loss reported by private companies was $ 380,000. Companies with D&O insurance have incurred losses of between $ 129,000. Companies without D&O insurance have incurred a loss of between $ 480,000.
Other Common Examples of Private D&O Company Claims
• Many shareholders have led smallholder purchases suspecting misrepresentation of the company’s fair market value
• a buyer of a company or its goods means a bad representation
• the sale of company assets to businesses owned by multiple shareholders
• a creditors’ committee or claims of a trustee
• private investor funds and loan applications
• Merchants who suspect misrepresentation regarding credit enhancement
• Consumer protection and privacy requests
Private Companies Policy Consideration
Executive Liability insurance policies in private companies often provide a combination or package of inclusion, but may not be limited to: Duties of Directors and Officers, Employment Practices Liability, ERISA Fiduciary Liability and Commercial Crime / Fidelity Insurance.
D&O policies, whether written individually or in the form of a composite form, are written “on request”. This means that a claim must be made to a certified person and reported to the insurer at the same time as the applicable policy, or under a certain extended reporting period (claims) after the expiry of the policy. This is a completely different result of credit policies such as Commercial General Liability traditionally labeled “happening”, which includes insurance that was in effect at the time of the accident, even though the claim was not reported until years later.
Installation of “Side A”, which protects certain Insureds in the event that a Secure business is able to protect individuals, a common agreement contained in many forms of private company policy. These policies are generally constructed by a policy limit that is shared between various insurance agreements resulting in an inexpensive insurance product designed for small and medium-sized businesses. For an additional premium, different policy limits can be purchased with one or more different insurance contracts with a customized insurance package.
Also, policies should be reviewed to determine whether they extend coverage of aggregated “bad practices” committed by non-officials or directors, such as employees, private contractors, employees and temporary employees.
Imputation of Knowledge & Severability
Revenue can be severely affected if an Insured person is aware of the facts or circumstances or is involved in the misconduct that filed the claim, before the first policy date on which the claim was reported. Policies vary depending on how much and how much, the information or conduct of another “bad character” can be placed on “Innocent” insurers and / or in a Protected Business.
“Failure”, an important provision in D&O policies that are often ignored by policyholders to the point of threatening to deactivate pending a serious claim. The stiffness segment can be sorted by varying degrees of flexibility – from “partial” to “full severity.” The offer of “full resilience” is always preferred in the Insurance perspective. Many D&O policies, specify the specific positions of senior executives defined in the policy on Protected Business. That inclusion of information may serve to achieve coverage that may have been obtained otherwise in a certified business.