Tesla to forego D&O liability insurance, citing cost

Tesla Inc. said in a financial filing Tuesday that it is not renewing its directors and officers liability insurance policy for the 2019-2020 policy year because of the “disproportionately high” premiums quoted by insurers.

Instead, CEO Elon Musk has agreed to personally provide coverage “substantially equivalent” to such a policy for a one-year period, with other members of the company’s board third-party beneficiaries, the Palo Alto, California-based electronic car maker said in its form 10K/A statement filed with the U.S. Securities and Exchange Commission.

The filing states that, “The Board concluded that because such arrangement is governed by a binding agreement with Tesla as to which Mr. Musk does not have unilateral discretion to perform, and is intended to replace an ordinary course insurance policy, it would not impair the independent judgment of the other members of the Board.”

While not commenting specifically on Tesla, Rob Yellen, New York-based executive vice president of Willis Towers Watson PLC’s FINEX North America practice, said, “It happens from time to time.“

Many times, he said, cash-rich clients have an appetite for risk, and “they feel they don’t need to transfer the risk.”

He added, however, “Many clients, confronted with price increases, keeping the big picture in mind, realize there’s an awful lot of value on the table and if they can afford to pay for the coverage, they do.”

Experts said at a Business Insurance D&O webinar last week that companies can expect higher D&O liability insurance rates, lower limits and more exclusions in their policies due to the coronavirus pandemic.

In April, a federal judge said Tesla and Mr. Musk must face a lawsuit claiming they misled shareholders when Mr. Musk tweeted that he had secured funding to take his electric car company private in a $72 billion transaction.