KEEP YOUR DIRECTORS & OFFICERS COVERED

A recent increase in corporate bankruptcies has brought a new awareness to the quality of Directors & Officers (D&O) Insurance coverage.  D&O insurance was created to provide coverage for individual directors and officers to help companies attract and retain talented board members.  However, over time it has evolved to include coverage for the entity itself.  D&O coverage is now purchased by non-profit and for-profit corporations alike and typically provides three basic types of coverage:

• Side A -   This coverage provides protection for board members and executives where the underlying claim is non-indemnifiable.
• Side B - Provides coverage for the company as it indemnifies named directors and officers.
• Side C - Grants coverage for the company for claims brought directly against it, such as securities law claims.

Unfortunately, many D&O policies do not provide separate limits of coverage for the different sides, so all claims are paid from the same limit.  Who does this leave without coverage, all too frequently, it is the actual directors and officers on the board of directors who are left over once the limits of coverage have been exhausted.

How can this be prevented? Among other solutions, always make sure that Side A coverage has its own separate limit.  This way, once the entity has exhausted its own limits, Side B and/or Side C,  it cannot reach across and take the limits from the directors and officers.  Another plus is that the the deductible or retention can usually be much lower on Side A coverage too!

For a great article on how bankruptcies can hijack your D&O coverage and other ways to protect yourself, check out this article from American Agent & Broker magazine.  http://bit.ly/acj5T1