Insurance Policy Comparison

A lot has been written about the increased exposure to D&O insurers posed by shareholder derivative actions. But what are those increased exposures? They generally fall into four categories: (i) a settlement payment under Side A by the Ds and Os to the company; (ii) defense costs for the Ds and Os under Side B; (iii) the payment of fees to plaintiff's counsel as part of Loss; and (iv) the payment of fees and costs incurred by the company in evaluating a derivative action. The settlement payment by the Ds and Os usually represents the largest exposure. There are many examples of nine and eight figure settlements. See the below list borrowed from The D&O Diary. These settlements are almost always paid under Side A because, with an exception or two, state law prohibits a company from indemnifying its Ds and Os for a derivative settlement (otherwise, the company would just be cutting a check to itself). Defense costs for Ds and Os are payable under Side B because state law generally allows companies to advance defense costs to its Ds and Os for the defense of derivative actions. Back in the day when derivative actions were tag-alongs to shareholder class actions, were stayed pending resolution of the class action, and were settled for corporate governance changes, defense costs for derivative actions were relatively modest. Nowadays, however, with some of the more prominent, aggressive plaintiffs' firms prosecuting derivative actions, which can be nearly as lucrative for them as a class action, defense costs for derivative actions can be very significant. As for plaintiff's attorney's fees, they can come out of the settlement amount or they can be separately awarded by the court (usually where there is a non-monetary settlement involving corporate governance changes). If the former, arguably the fee award doesn't increase the exposure to D&O insurers, except to the extent that the settlement amount is inflated to account for the award. As for the latter, long gone are the days of awards of $250,000 in fees; rather, plaintiff's counsel seek and often obtain much larger awards. Finally, the fees and costs incurred by the company in evaluating a derivative action (such as whether it should appoint an SLC, whether it should move to dismiss, whether it should take over and prosecute the action) are often covered under D&O policies. While these fees and costs present an exposure to D&O insurers, they often are sublimited to limit that exposure. I think one of the biggest changes in derivative actions in the past 10 or so years is the involvement of some of the more prominent and aggressive plaintiff's firms in the space. I imagine the mega settlements (and the accompanying significant award of attorney's fees) that seem to be happening more and more frequently will sustain if not increase this involvement. #insurancecoverage #directorsandofficers #derivativeactions

I have argued repeatedly that private equity and private credit face a growing risk of litigation. And, now, insurers seem to agree! According to the WSJ, insurers providing Directors & Officers (D&O) coverage to private credit and private equity firms are raising premiums and tightening terms. Meanwhile, premiums for public companies are broadly flat. If they are charging more to insure PE/PC executives, they are effectively saying that the expected cost of lawsuits, regulatory actions, and settlements has increased. For researchers, the interesting question is whether this trend can be traced over time. Did insurance premiums rise when the SEC went after accelerated monitoring fees? When broker-dealer violations came under scrutiny? When regulators backed away from tougher enforcement? A time series of D&O premiums could become a market-based measure of expected legal risk in private markets. We often use CDS spreads to measure expected credit risk. Perhaps D&O premiums can tell us something about expected litigation risk. The insurance industry may be seeing what many investors still ignore. https://lnkd.in/eyhESaxt

“PowerPoint abuse” or a governance wake-up call? This viral exchange between a Gen Z employee and management isn’t just about work-from-office vs work-from-anywhere. It’s a boardroom and liability issue hiding in plain sight. For Directors & Officers (D&O), here’s the lens that matters 👇 🔹 Where D&O Liability Creeps In When leadership decisions around attendance, discipline, or “insubordination” are: -Inconsistent -Poorly documented -Applied selectively -Misaligned with written HR policies …the risk shifts from HR friction to personal liability for directors, CXOs, and senior management. Employment-related disputes can escalate into: -Allegations of harassment or coercive work practices -Claims of wrongful disciplinary action -Accusations of abuse of authority or retaliation -Class-action risks as Gen Z employees increasingly speak publicly and digitally These are classic triggers for D&O claims. 🔹 Why This Resonates With Gen Z Gen Z employees: -Expect clarity over control -Value process over power -Document everything 📱 -Aren’t afraid to escalate concerns publicly or legally What feels like a “casual instruction” to management can feel like intimidation or unfair practice to a digitally aware workforce. 🔹 The Employer’s Reality For founders, directors, and HR heads: Verbal directives ≠ defensible governance “Company culture” ≠ legal justification Intent ≠ outcome in a courtroom When disputes arise, directors are personally named, not just the company. That’s where a robust D&O policy with Employment Practices Liability (EPL) cover becomes critical—not optional. 🔹 The Insurance Insight A well-structured D&O policy helps protect against: ✔ Claims from employees and ex-employees ✔ Legal defence costs ✔ Board-level decision scrutiny ✔ Reputation-impacting disputes But insurance works only when governance works. 🔹 Final Thought This isn’t about Gen Z being “difficult” And it’s not about employers “losing control” It’s about modern leadership, defensible decisions, and protecting the people who sign off on them. 📌 If you hire Gen Z, you must also insure and govern for Gen Z. 👉 Directors, founders, HR leaders: Is your D&O policy aligned with today’s workplace realities—or yesterday’s assumptions? Let’s talk.

'𝗜𝗻𝘀𝘂𝗿𝗲𝗱 𝘃𝘀 𝗜𝗻𝘀𝘂𝗿𝗲𝗱' 𝗲𝘅𝗰𝗹𝘂𝘀𝗶𝗼𝗻 𝗶𝗻 𝗗&𝗢 𝗟𝗶𝗮𝗯𝗶𝗹𝗶𝘁𝘆 𝗜𝗻𝘀𝘂𝗿𝗮𝗻𝗰𝗲: 𝗧𝗵𝗲 𝗖𝗹𝗮𝘂𝘀𝗲 𝘁𝗵𝗮𝘁 𝗰𝗮𝗻 𝗹𝗲𝗮𝘃𝗲 𝗗𝗶𝗿𝗲𝗰𝘁𝗼𝗿𝘀 𝗲𝘅𝗽𝗼𝘀𝗲𝗱 𝗪𝗵𝘆 𝗜𝘁 𝗠𝗮𝘁𝘁𝗲𝗿𝘀 One of the most commonly misunderstood (and polarizing) provisions in Directors and Officers Liability Insurance is the 'Insured vs Insured' exclusion. 𝗥𝗮𝘁𝗶𝗼𝗻𝗮𝗹𝗲 𝗕𝗲𝗵𝗶𝗻𝗱 𝘁𝗵𝗲 𝗘𝘅𝗰𝗹𝘂𝘀𝗶𝗼𝗻 This clause generally excludes coverage for claims brought by one insured person against another — for example, when a director sues another director or when the corporation sues its former directors or officers. It is intended to prevent collusion and protect insurers/ reinsurers against paying for intra-corporate disputes that may have led to policy payouts. 𝗧𝗵𝗲 𝗜𝘀𝘀𝘂𝗲: 𝗟𝗲𝗴𝗶𝘁𝗶𝗺𝗮𝘁𝗲 𝗖𝗹𝗮𝗶𝗺𝘀 𝗖𝗮𝗻 𝗕𝗲 𝗘𝘅𝗰𝗹𝘂𝗱𝗲𝗱 However, the clause can also bar legitimate claims, including whistleblower suits, derivative actions, or proceedings instituted by newly appointed board members against their predecessors. To mitigate this, insurers increasingly offer modified or targeted carve-outs covering actions by receivers, liquidators, or other independent third parties. Such provisions are heavily policy-specific and ought to be carefully negotiated with the involvement and advice of specialists. 𝗞𝗲𝘆 𝗧𝗮𝗸𝗲𝗮𝘄𝗮𝘆𝘀 In our considered view, a key takeaway is for Boards to consider D&O cover seriously, take matters under proper advisement, and to make it a point to 𝘤𝘢𝘳𝘦𝘧𝘶𝘭𝘭𝘺 𝘳𝘦𝘷𝘪𝘦𝘸 the terms of coverage, as well as the exclusion clauses. The 'Insured vs Insured' clause is a good illustration of how one 'minor paragraph' with a few lines in a D&O policy may result in major consequences in the event that a lawsuit is filed against directors, officers, or similarly insured persons. 𝗤𝘂𝗲𝘀𝘁𝗶𝗼𝗻𝘀 𝗳𝗼𝗿 𝗗𝗶𝗿𝗲𝗰𝘁𝗼𝗿𝘀 𝗮𝗻𝗱 𝗕𝗼𝗮𝗿𝗱𝘀: • Have you reviewed your D&O policy's 'Insured vs Insured' exclusion? • Do you know what carve-outs exist, particularly for liquidators, receivers, or derivative actions? • Does your policy protect you if a newly appointed board brings claims against you? The devil is in the details, and in D&O insurance, those details can mean the 𝗱𝗶𝗳𝗳𝗲𝗿𝗲𝗻𝗰𝗲 𝗯𝗲𝘁𝘄𝗲𝗲𝗻 𝗰𝗼𝘃𝗲𝗿𝗮𝗴𝗲 𝗮𝗻𝗱 𝗽𝗲𝗿𝘀𝗼𝗻𝗮𝗹 𝗲𝘅𝗽𝗼𝘀𝘂𝗿𝗲. #DOInsurance #ExecutiveRisk #CorporateGovernance #RiskManagement #InsuranceReinsurance #LegalInsights

Every so often I encounter a D&O policy that has generous limits with severely jeopardized underlying coverage terms. The most recent example was a company that provided technology to assist with managing specific medical conditions. Upon reviewing their D&O tower, there was an extremely broad bodily injury exclusion with the typical broad preamble excluding claims “for, based upon, arising from, directly or indirectly related to” any bodily injuries, etc. The policy also contained an equally broad exclusion for professional services. No carvebacks were given to either…no Side A…no defense costs…nothing. Despite the stacking, the tower also lacked any side A DIC (difference in condition) layers which would have at least filled in some of the cracks in the program, shielding the company’s directors and officers against non-indemnifiable claims stemming from their most likely exposures. Lucky enough a simple conversation with the carrier was all it took to have those exclusions softened significantly (at no additional premium). There are a few good lessons here for all brokers and policyholders. Policyholders often think the difference in cost between strong coverage and weak coverage can be significant, but sometimes it literally costs nothing, it just requires the right conversation and the right request to the carrier. Secondly, while coverage negotiations can often run the length of a long grocery list, sometimes it’s just a simple 1 or 2 changes that can make the biggest differences to a program. Lastly, policy terms are way more important than huge policy limits. There’s no point in having a tall D&O tower built on quicksand. If it’s a matter of cost, you’re always better off with lower limits and strong terms, as opposed to huge limits built on top of a weak policy. Build a strong foundation first, then start stacking! #directorsandofficers #insurance

One of the most expensive mistakes I see in D&O insurance isn’t a denial of coverage. It’s waiting too long to report an inquiry because “it’s not a claim.” But many D&O policies don’t just define “Claim” as a lawsuit. Depending on the wording, a Claim may also include: • A subpoena • A Wells Notice • A formal administrative or regulatory investigation • A written demand for monetary, non-monetary, or injunctive relief • In some policies, certain investigations once an insured person is identified. An inquiry, on the other hand, is often informal: • A regulator asking questions • A request for documents • An investor seeking information • An internal complaint • A customer expressing concerns Most inquiries are not Claims. But here’s where it gets tricky. An inquiry can evolve into a Claim. And many D&O policies require Claims to be reported during the policy period (or any applicable reporting period). If the first report isn’t made until after the inquiry becomes a formal Claim, timing can become a coverage issue. It’s also critical to review the policy’s notice provisions. Pay close attention to: • When a Claim must be reported after it is first made. • Whether the policy permits notice of circumstances that may reasonably be expected to give rise to a future Claim. • Any reporting requirements before the policy expires. • Any extended reporting period or post-expiration reporting window that may apply. These deadlines and notice requirements vary by policy and carrier, and missing them can jeopardize coverage even where the underlying matter would otherwise be covered. The lesson isn’t to report every email you receive. It’s to understand exactly where your policy draws the line between an inquiry and a Claim—and to recognize when an informal matter crosses that threshold. In D&O insurance, coverage often turns on definitions and timing more than the underlying allegations. If you haven’t checked your definition of Claim lately, I’m happy to review. DM me!

Why should board directors care about insurance? For most board directors, involvement with insurance is probably checking the D&O cover when joining the board and maybe reviewing the company's premiums as a p&l item. There are critical reasons for directors to be far more involved with the company's insurance program. First, insurance can be a leading indicator of emerging risk. If insurance is becoming more expensive or if there are new exclusions this may suggest areas that the risk committee and board should be more focused on. Examples include climate risks and areas like AI and crypto. Second, you often only find out the shortcomings of your insurance coverage when something goes wrong. For this reason I recommend boards to ask management to do an RfP for their insurance broker every 3 to 5 years. This does not mean necessarily changing your broker, but getting new ideas about the structure of the program, terms and conditions, and making sure you have access to new tools and technology for risk management is a valuable exercise. You need to be able to benchmark both your coverage and the service provided by the broker. The company may be able to reduce premiums by having higher deductibles or restructuring the program. On the other hand, there may be gaps in coverage, intentional or not, or new risks that need to be addressed. Examples include human trafficking cases, legionnaires disease, cyber, kidnap and ransom. In a perfect world, your broker should be on top of all these issues, but without a structured process how do you know? Insurance is not just a p&l expense or a box ticking exercise. It needs to be an integral part of risk management, which is a key oversight of the board. Are you confident that your company is maximizing the value of insurance? The DCRO Institute WomenExecs on Boards Extraordinary Women on Boards (EWOB) #risk #insurance #boardofdirectors

What board members and CEOs should know about the impact of climate change on their D&O insurance: 📌 Increasing climate laws and regulations are placing greater compliance requirements on companies and their directors and officers. These include carbon reduction targets, disclosure of climate-related (physical/transition) risks, and ESG metrics. 📌 Failure to meet with these requirements can lead to regulatory investigations, fines, and increasing litigation - both from shareholders and other stakeholders. In some cases, these claims are directed not only at the company, but also at board members and directors in their individual capacities. 📌 The increasing risk of climate-related litigation and regulation is leading to higher premiums for D&O insurance policies. In addition, insurers may impose exclusions or limitations on coverage for claims related to climate change. They will also take a closer look at the companies‘ ESG policies and practices and require more detailed information. As climate change increases the scrutiny for corporate directors and officers, D&O insurance is becoming a critical component of a company’s risk management strategy, and board members and directors are well advised to prepare for ESG/climate-related liability sooner rather than later.

A board member lost their personal assets because their Side A coverage was sublimited to $1M on a $10M tower. The company couldn’t indemnify. And their policy couldn’t cover the gap. We’ve reviewed 340+ financial institution D&O programs over the last five years. The same three gaps show up in almost every one. Gap one: Side A coverage sublimited or missing entirely. Directors assume the company indemnifies them. Most bylaws say the company “shall” indemnify. But “shall” fails when the company is insolvent, when the claim is a derivative suit, or when the board votes not to indemnify. Side A is the last wall between a director’s personal assets and a plaintiff. If it’s sublimited to $1M on a $10M tower, the math doesn’t work. Gap two: severability language that lets one director’s fraud void coverage for every other director on the board. Standard forms often include full severability for the application but partial or no severability for exclusions. One bad actor on your board shouldn’t strip coverage from the eleven who did nothing wrong. Read your fraud exclusion. If it says “any Insured” instead of “the Insured,” every director is exposed. Gap three: allocation provisions that give the carrier discretion over how much of a mixed claim they’ll pay. When a suit names the company and individual directors, the carrier decides what percentage is “covered loss.” Without a negotiated allocation formula…or better, a presumptive allocation in favor of the insured - the carrier holds the lever. Pull your D&O policy. Check Side A limits against the full tower. Read the severability clause in the fraud exclusion. Find the allocation language. In less than ten minutes, you can spot these gaps. Every one of them is fixable at the next renewal. If you like this post, ♻️ repost it for other directors in your network, and follow Mark Flippen and LION Specialty for more daily corporate liability insights!

I spoke with a client the other day and walked them through a D&O situation, and it reminded me just how misunderstood this coverage really is. At its core, Directors & Officers insurance protects the people making decisions for a company (not the company’s property or day-to-day operations). If you’re a director, officer, or executive, you can be held personally liable for decisions you make in your role; even when you’ve acted in good faith. I can’t stress that enough. Here’s how D&O coverage works, in simple terms: 1️⃣ It responds to allegations, not just proven wrongdoing 2️⃣ It helps cover legal defense costs, which can start immediately 3️⃣ It can respond to claims from shareholders, employees, regulators, creditors, or third parties Common examples include: - Allegations of mismanagement or breach of fiduciary duty - Employment-related claims (wrongful dismissal, discrimination, harassment) - Misrepresentation to investors or stakeholders - Failure to comply with regulations or corporate governance obligations One of the biggest misconceptions is that D&O is only for large corporations. In reality, small businesses, nonprofits, boards, and owner-operators are often more exposed; because they don’t have in-house legal teams or deep balance sheets. Another point clients are often surprised by: 👉 Defense costs alone can be financially devastating, even when a claim is unfounded. D&O helps ensure those costs don’t come out of your personal assets. And just in case it didn’t land the first time: It costs money to be right. 💰 Even if you’ve done everything correctly, defending yourself still costs money (and that defense is the claim). D&O isn’t about expecting something to go wrong. It’s about recognizing that leadership comes with responsibility; and protection should come with it too. If you sit on a board, sign contracts, manage people, or make strategic decisions, D&O isn’t a “nice to have.” D&O is a part of protecting yourself while you build something meaningful.