D&O Insurance Myths (Part 1) (Video) – Insurance Laws and Products

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Eric Jesse from Lowenstein
Sandler’s Insurance Recovery Group dispels some common
misconceptions about D&O insurance, including what it covers
and why your business needs it.

Speakers:

Eric Jesse, Partner,
Insurance Recovery

READ THE TRANSCRIPT

Eric Jesse:Hi, I’m Eric Jesse from
Lowenstein Sandler’s Insurance Recovery Group.
Welcome to “In the Know.”

Directors and Officers (D&O) insurance is an important type
of coverage, but it turns out there are several misconceptions
about it. For one, D&O insurance is a bit of a misnomer
because, yes, it does cover directors and officers, but it can
cover companies for their wrongful acts, too.

So, we just dispelled one misconception about D&O insurance,
so let’s dispel a few more myths to give you a better picture
of what D&O insurance does.

First,and this is something we hear all the
time: D&O insurance does not cover fraud or intentional
misconduct. Not so fast—while D&O policies will include
exclusions for actual and deliberate fraud, criminal conduct, or
sometimes willful violations of laws, those exclusions do not apply
unless and until there is a final non-appealable adjudication
establishing that such fraud or other intentional conduct occurred.
That means directors, officers, and companies can access D&O
insurance for Defense Cost coverage to challenge those lawsuits and
for settlements before that final non-appealable judgment is ever
reached.

Second,we hear people say, “Well we’re
a private company, or we’re a company with few
shareholders—we don’t need D&O insurance.” You
might want to rethink that. D&O insurance can cover more than
shareholder claims. The scope of coverage can be pretty broad
because D&O insurance policies provide coverage for wrongful
acts, subject to the policy’s exclusions. But that means there
is the potential for coverage for claims that are brought by
customers, employees, lenders and other creditors, government
regulators, and business competitors. And the types of claims can
include misrepresentation claims, theft of trade secrets or
intellectual property claims, tortious interference, and government
investigations.

Here’s athirdmyth: “We’re a clean
risk, we behave and do everything the right way, and we’ve
never had a claim before, so we don’t need insurance.”
Wrong—there are plenty of companies that “do
right,” but that may not be how others see things, to the
point of those third parties may make a claim or bring a
lawsuit.

Also, if you really are that “clean risk,” and there
isn’t a history of claims, that will be reflected in your
premium. But if that claim comes, it will probably be worth those
premium dollars over the years to protect yourself. One of the
valuable coverages of a D&O policy is that it is
“litigation insurance.” It will cover the attorneys’
fees and expenses that you incur to defend against that lawsuit
that is groundless, false, or fraudulent.

Thank you for joining us today on “In the Know.” We’ll
pick it up next episode and share a few more D&O insurance
myths and set the story straight on those. See you next month.