Directors and officers liability Insurance is a common type of insurance for corporations.  However, being commonplace does not mean that it is standard or easy to comprehend.  In fact, the Federal Deposit Insurance Corporation (FDIC) issued Federal Institution Letter 47-2013 to say just that.  The letter, released October 10, 2013, explained that:
 
“In recent years, the FDIC has noted an increase in exclusionary terms or provisions contained in depository institutions’ D&O insurance policies…  When such exclusions apply, directors and officers may not have insurance coverage and may be personally liable for damages arising out of civil suits relating to their decisions and actions. In some cases, directors and officers may not be fully aware of the addition or significance of such exclusionary language.”
 
This warning – issued from an independent third party – should not be taken lightly.  It is important to review the coverage terms, exclusions and definitions of a firm’s D&O policy.  It is also critical to understand what changes may have occurred from last year’s policy to the current policy during the renewal period.
 
Directors and officers insurance is considered a “specialty” insurance.  Unlike auto insurance or workers compensation insurance, the exact policy language is not standard or regulated.  Each of the dozens of insurance companies offering D&O insurance has their own proprietary form and rates.  This means that not all insurance is created equal, and a simple price comparison will most likely leave a firm with large gaps in coverage.
 
Directors and officers insurance is meant to protect the personal assets of the officers in the event the company or its officers are named in a suit for poor management of the business.  Since the officers are also the buyers of this insurance, it is prudent to perform all necessary due diligence on such a risk transfer product.  Having a broker who is an expert in this type of insurance is imperative for any firm navigating an increasingly perilous regulatory landscape and looking to retain the highest caliber of directors and officers.
 
Contact Calculated Risk Advisors to discuss modernizing your companies’ executive liability insurance program.