Corporate indemnification and insurance policies designed to protect Directors and Officers (D&Os) are complex technical documents. These “risk management” tools are not well understood and too often only considered when problems arise. Legislation concerning corporate governance and disclosure with a dramatic increase in litigation, is causing more boards to ask questions about the scope of protection afforded under the corporate indemnity and insurance policies that are designed to protect them.
Before you purchase a D&O insurance policy, here are some questions and considerations you should take into account:
Who is the insurance company?
The knowledge, experience, integrity and financial capacity of the insurer are of paramount importance.
It is easy for an insurance company to write business when everything is going well for the client. However, the insurer will be needed most when things are going wrong, you may be experiencing difficulties with your business or you are involved in litigation or potential litigation.
In these challenging times you will appreciate the comfort of dealing with a knowledgeable and competent insurer should a claim occur. Issues can arise with renewal of coverage and acceptance of notice of claim. While not always avoidable, it is wise to deal with insurers that have sound underwriting and claims personnel with experience in writing the business and exposures presented by your company.
How are defense costs covered?
Most policies do not impose a duty to defend on the insurer. Where the insured has the duty to defend the policy will spell out clear guidelines as to how the insured must conduct the defense.
In most cases the insured is required to allow the insurer to associate in the defense of a claim and approve the selection of counsel. The policy should also clearly state how the insured will be reimbursed for defense costs as well as settlement amounts.
What are the exclusions in the policy?
Exclusions such as Conduct Exclusions deal with fraud and disgorgement of profits or remuneration or financial advantage to which the insured is not legally entitled.An important aspect to these exclusions is when coverage for defense of allegations ends.
Some policies refer to a “finding in fact”, language that is considered to be limiting and may cut short the continuation of defense costs for an innocent director who may subsequently be exonerated. A far broader approach is “final adjudication” where coverage continues until there is final settlement in the courts which means defense costs will continue through the entire settlement process.
What policy terms have specific definitions?
There can be considerable difference in the scope of Definition of Claim between various policies, as many insurers have substantially broadened the definition.
As well, some policies include employees only with respect to an employment practices liability (EPL) claim; if named as a codefendant with another insured person or if the employee acts for the corporation as a qualified person under NI43-101. Some policies also clearly state that in-house legal counsel and risk managers are added as covered persons.
Find out more:
This list is also not exhaustive and there are a variety of other insurance coverages that Directors and Officers of mining companies need in order to address all the risks they face and prevent losses.
Download our free guidebook “Directors’ and Officers’ Liability Insurance Guide” here to find out how you can protect your company’s assets:
