Directors and officers operate in an extremely difficult environment. The basic management practices guiding their conduct have not been sufficient to guard against claims of mismanagement and all company managers have come under increasing judicial and regulatory scrutiny due, in large part, to the visibility of corporate scandals. The legal and regulatory changes are expected to improve corporate governance over time but also increase litigation risk for companies that are not in compliance. 

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Shareholder groups have made demands on board members by pressuring corporate management to make swifter changes and improvements to remain economically competitive in the complex world markets. Although there is no single solution for protecting directors and officers from liability, Directors and Officers Liability Insurance (D&O) can be an effective tool when looking to protect a firm's overall exposure. Insurance carriers can provide D&O insurance designed to protect a director or officer of a firm for liability due to breaches of duty resulting from negligence, error, or omission. 

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Directors and Officers coverage is typically underwritten on a one-year basis for a single aggregate limit of liability. Many corporations purchase some form of entity coverage or predetermined allocation for securities law claims as a means of avoiding much of the traditional allocation of loss that normally occurred under previous D&O policies. Allocation often resulted in disputes between D&O underwriters and policyholders as to how certain elements of a loss, such as uncovered policies or wrongful acts, should affect the ultimate amount of insurance recovery. Other coverage enhancements include: 

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• Automatic coverage for acquisitions 

• Outside directorship liability coverage 

• Reimbursement for defense costs after the deductible is satisfied 

• Securities claims protection for employees

 

There is little directors and officers can do to diminish the complexity of the legal and business environment in which they operate. A great deal can be done, however, to reduce the risk of exposing personal assets of directors and officers if effective corporate governance is combined with a risk management program inclusive of the broadest D&O liability insurance protection available.

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FIRSTGATE works with the major insurance carriers that provide corporate protection from shareholder claims of mismanagement. Some of the major carriers are:

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• AIG

• Chubb

• XL

• Ace

• Lloyd’s