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With more than 150 different directors and officers coverage forms in the marketplace and increased scrutiny by the U.S. Securities and Exchange Commission, it is now more important than ever to ensure that any policy adequately meets the needs of your officers and directors.
The post-Sarbanes-Oxley Act world has resulted in a new corporate environment that makes D&O coverage more important for directors and officers. Indeed, a 2004 study by a leading D&O insurer found that many corporate executives expect that their directors and officers will be sued by a combination of customers, vendors and shareholders. As you contemplate renewal of your policy, a complete analysis of its provisions will go a long way toward heading off potential costly and harmful problems down the road. Whether you work with outside counsel, a broker, risk manager or chief financial officer in evaluating your current policy and in negotiating changes, there are some important considerations that should be addressed.
How much coverage?
One of the most fundamental issues to be determined is how much and what kind of coverage is needed. The annual limit of D&O coverage that is being purchased by corporations is widely divergent, ranging from $1 million to $500 million. Considerations include:
Corporate directors and officers continue to face heightened scrutiny by regulators and other stakeholders, making it imperative for organizations to carefully review their insurance policies to make sure they are protected in the event of litigation. More than ever, plaintiffs are going to target directors and officers, whose potential liability and legal costs can be significant. Steps to avoid or eliminate that exposure, in addition to sound corporate governance, include a sound D&O policy.
Kim Marrkand is chair of law firm Mintz Levin Cohn Ferris Glovsky & Popeo P.C.'s insurance/reinsurance practice group. She is also a member of the firm's insurance bankruptcy group and is based in the Boston office.