Directors and officers insurers backdating claims face
A directors’ and officers’ (D&O) insurance program provides an invaluable means to cover the ever-increasing costs incurred by companies to combat such actions.
Most public companies consider the need to procure D&O insurance coverage a given—the reality of an increased number of derivative, securities, and fiduciary lawsuits.
Importantly, the policy at issue did not define “claim.” Relying on the definition of “claim” in , the court held that “claim” meant “a demand for something due or believed to be due.” In an attempt to circumvent its coverage obligation, Federal Insurance Co.
argued that the Department of Justice’s investigation did not constitute a claim because it did not demand money.
Private and Public Companies Have Different Coverage Opportunities Public companies maintain significantly higher limits of liability in their insurance program.
ACE denied coverage, asserting in part that the subpoena and investigative demand did not constitute claims.A significant number of D&O policies define “claim” as follows: (1) a written demand for monetary, nonmonetary, or injunctive relief; (2) a civil, criminal, administrative, regulatory, or arbitration proceeding for monetary, nonmonetary, or injunctive relief that is commenced by (i) service of a complaint or similar pleading; (ii) return of an indictment, information, or similar document (in the case of a criminal proceeding); or (iii) receipt or filing of a notice of charges; or (3) a civil, criminal, administrative, or regulatory investigation of any Insured Person: (i) once such Insured Person is identified in writing by such investigating authority as a person against whom a proceeding described in Definition (b)(2) may be commenced; or (ii) in the case of an investigation by the Securities and Exchange Commission (SEC) or a similar state or foreign government authority, after service of a subpoena upon such Insured Person.Some policies define “claim” broadly and specifically list lawsuits, administrative proceedings, investigations, and target letters.D&O Insurance Offers More Than Executive Protection D&O insurance is one of the most important safeguards a company and its executives have against allegations of wrongdoing, aggressive plaintiffs’ firms, and government investigations.Public and private companies purchase D&O coverage to protect management and outside directors against the ever-changing risks of litigation.