D&O INSURANCE FOR PRIVATELY-HELD COMPANIES, PRIVATE EQUITY AND NON-PROFITS
RC: How would you describe current levels of awareness around D&O liability? Is there a lack of clarity on potential risks – and how to manage them with insurance solutions?
Mason: Overall, I think there is a high level of awareness surrounding liabilities of directors and officers. Individuals sitting on boards, particularly outside or independent directors, are concerned about protecting their personal assets in the event they are sued. This is a uniform concern among all companies – private, public and not for profit. Similarly, businesses view D&O coverage as a means to protect their balance sheets in situations where they have to expend monies to indemnify their directors and officers, or in situations where claims are made against the corporate entity itself. But as concerned as individuals may be about protecting their own liabilities, there are still firms that forego purchasing D&O coverage, especially closely held companies, as they cannot envision a scenario where they would be sued. Other companies hastily purchase coverage without really understanding whether the D&O insurance policy is comprehensive enough to protect them in the event of a claim. Each of these strategies can be problematic. D&O litigation is complex and there are ample sources of claimants outside of a shareholder. In a general sense, the D&O market has softened for private and not for profit businesses in the past few years, to the extent that most policies have decent baseline coverage. However, D&O insurance is not standardised, so there remain vast differences between what one insurer will offer over another. Even small sized risks need attention to detail when it comes to coverage. At the end of the day, litigation is litigation.
Jan-Mar 2015 Issue
Mason & Mason Technology Insurance