Executive Liability Insurance
Executive Liability Insurance, Since its inception about fifty years ago, D&O insurance has evolved into a family of products that respond differently to the needs of listed companies, privately-owned companies, and non-profit entities and their respective board members, officials, and administrators.
The responsibilities of the Board of Directors and civil servants, executive responsibility, or management liability insurance are essentially interchangeable terms. However, insurance policies, definitions, exclusions, and coverage options vary significantly depending on the type of policyholder being insured and the insurance company taking out the risk.
Executive Liability Insurance, Management liability insurance, once considered a necessity solely for listed companies, particularly because of their exposure to shareholder litigation, has been recognized as an essential part of a risk transfer program for privately-owned companies and non-profit organizations.
Optimizing protection is a common goal shared by all types of organizations. In our opinion, the best way to achieve this goal is through the involvement of highly experienced insurance, legal and financial advisors who work with management to continuously assess and manage these specialized corporate risk exposures.
Private company D&O exposures
Executive Liability Insurance, In 2005, Chubb Insurance Group, one of the largest insurance companies in the field of D&O insurance, conducted a study of the D&O insurance trends for acquisitions of 450 private companies. A significant percentage of respondents gave the following reasons for not buying D&O insurance:
• did not see the need for D&O insurance,
• their D&O liability risk was low,
• believed that the D&O risk is covered by other liability policies
Executive Liability Insurance, The companies that responded as non-buyers of D&O insurance experienced at least one D&O damage in the five years prior to the investigation. The results showed that private companies with 250 or more employees were the subject of D&O lawsuits in the previous five years, and 20% of the companies with 25 to 49 employees experienced a D&O claim.
The investigation showed that 43% of D & O disputes were brought by clients, 29% from regulatory agencies, and 11% from non-publicly traded securities holders. The average loss reported by private companies was $ 380,000. Companies with D&O insurance experienced an average loss of $ 129,000. Businesses without D&O insurance experienced an average loss of $ 480,000. Executive Liability Insurance.
Some common examples of private D&O requirements
• Major shareholder-led acquisitions of minority shareholders alleging misrepresentations of the company’s fair market value
• buyer of a company or its assets claiming misleading information
• sale of the company’s assets to entities controlled by the majority shareholder
• claims from creditors’ committees or trustees
• requirements of private equity investors and lenders
• sellers who claim incorrect information in connection with credit extension
• requirements for consumer protection and privacy
Private enterprise D & O policy considerations
Executive Liability Insurance, Management liability insurance for privately-owned companies typically provide a combination or package of coverage that includes, but may not be limited to Directors ‘and Officials’ Liability, Employment Practice Liability, ERISA Trust Liability, and Commercial Crime / Loyalty Insurance.
D&O policies, whether taken out on an independent basis or in the form of a combination type insurance form, are drawn upon a “claims-made” basis. This means that the claim must be directed at the insured and reported to the insurance company during the same effective policy period or during a specified extended (claims) reporting period after the policy expires.
Executive Liability Insurance, This is a completely different coverage trigger than other liability insurances, such as commercial liability, which is traditionally taken out with an “incident” trigger, implying the insurance policy that was in place at the time of the accident, although the damage was not reported until years after later.
“Page A” coverage, which protects individual insured in the event that the insured entity is unable to indemnify individuals, is a standard agreement contained in many private business insurances. Executive Liability Insurance.
These policies are generally structured with a common policy boundary between the various insurance contracts, resulting in a more affordable insurance product tailored to small and medium-sized businesses. For an additional premium, separate policy limits can be purchased for one or more of each separate insurance contract that provides a more customized insurance package.