Directors and officers insurers backdating claims face
Private company D&O coverage is broader than public company coverage and often covers many of the concerns or risks private companies face, including claims by investors, competitors, customers, employees, or government agencies, and D&O insurance may provide protection against such losses.
Companies, both public and private, must identify potential liability risks and determine what insurance policy may meet the general needs of their business.
This broadening has been driven by the ever-changing economic, litigious, and regulatory environment in which corporations operate as well as an increasingly competitive insurance underwriting environment.”6 Changes have been made to policy wording: (a) broadening coverage to include co-indemnity between private equity investors and their portfolio company; (b) amending insured versus insured exclusions to protect coverage for derivative claims and cross-claims; and (c) revising coverage for claims relating to the Fair Labor Standards Act, pre–initial public offerings, anti-trust, and fraud.7 At renewal, effort must be made to understand whether or not a business is purchasing the best and most comprehensive coverage for its business.
Lawsuits Are Often Not the Only Mechanism Triggering D&O Coverage Private companies’ misconception that D&O is superfluous (because these businesses are privately held or family-run) ignores the various events that may cause financial harm to a business.
Private companies however, have been more reluctant to acknowledge and protect against a risk they feel is unlikely to present itself.
As a result, private companies do not universally procure D&O insurance. According to a 2016 Chubb report, private companies that have experienced D&O losses reported an average reported loss of 7,000 and a maximum reported loss of million.1 Of the private companies that experienced a D&O loss, 96 percent suffered a financial loss, 42 percent incurred a loss of productivity or man-hours, 36 percent faced a negative impact to morale/company culture, and 31 percent suffered a negative impact to their brand or reputation or both.2The top reasons a private company did not purchase D&O insurance include the following: 33 percent believed D&O coverage was not necessary because their business is privately held, 33 percent had no historical experience with such claims and therefore did not purchase D&O insurance, and 30 percent believed coverage was not necessary because their business is family run.3 Private companies’ justification for failing to purchase D&O coverage is misguided.
Last, under Side C coverage, the insurance company agrees to reimburse the corporate policyholder for liability arising out of certain types of claims made against the corporation itself.Private and Public Companies Have Different Coverage Opportunities Public companies maintain significantly higher limits of liability in their insurance program.Moreover, “[f]or large public companies, it is common to separate D&O and EPL exposures whereas the majority of private organizations prefer to bundle such coverages.”4 It is interesting, however, that “11% of private organizations reported that they were unsure of the structure of their program.”5 But the D&O marketplace continues to evolve: “The trend over recent years has been towards a general broadening of cover afforded to private companies, their management and their employees.Others however, are more narrow and may define “claim” to include only demands for monetary and nonmonetary relief, civil or criminal proceedings, or actions commenced by the return of an indictment.
A lawsuit is only one mechanism by which coverage may be triggered.
The court disagreed, reasoning that because the investigation related to potential violations of the Maryland Consumer Protection Act, coverage was triggered.