D&O Insurance

Between our retail and wholesale partnerships we collectively access over 95% of marketplace including the following carriers:

Embroker, Beazley, Hiscox, Chubb, E-Risk, XL, Travelers, Hartford, CNA, Berkley, AIG, QBE, CFC, Coalition, Great American, Zurich, Starstone, Sompo, Intact, Great American, Hanover, Everest, CAP Specialty, Berkshire Hathaway, AmTrust, Counterpart, Falcon, Axis, Arch, Aspen, Kinsale, Markel, Navigators, Nexus, RSUI, Westfield, Sompo, USLI, Navigators, Philadelphia, Fairco, Hudson, Bowhead, and more...

Additionally we also have access to specialty Lloyds Of London syndicates and proprietary programs.

• Investor claims alleging fraudulent inducement, misrepresentations in private placements and other omissions
• Derivative actions alleging breaches of fiduciary duties
• Competitors’ claims alleging negligent business interference, employee poaching and/or false advertising
• Claims brought by customers and clients (such as false labeling and claims related to crowdfunding)
• Regulatory investigations and proceedings related to compliance failures
• Creditor claims brought during insolvency
• In regards to EPLI insurance, employees alleging wrongful termination, discrimination, retaliation, harassment and/or wage and hour violations.

A common reason companies cite when bypassing D&O is the belief that they’ve never been (and don’t plan on being) sued. No company plans on being sued, just like no property owner plans on having a fire. But D&O is referred to as “sleep insurance” for a reason. Unexpected situations arise and even frivolous claims can be extremely costly to defend against. It’s also important to consider that, without D&O, in the event of certain claims, the only source of defense may be a director’s own wallet which could entirely expose his/her personal assets. If you happen to be a corporate officer with a deep wallet you may be pursued even more aggressively. That said, that are certain companies that are particularly exposed:

• All public companies and financial institutions
• Any companies raising funds (particularly raising PE/VC capital, who will often require it)
• Startups, due to their high failure rate and risk of insolvency
• Larger companies, due to the sheer number of investors
• Companies looking for experienced directors, who will require D&O before agreeing to sit on the board
• Companies operating in risk prone sectors such as cannabis companies and crypto companies.
• Companies with considerable regulatory oversight such as healthcare, tech and life-science companies

When it comes to D&O there are a lot of variables involved with underwriting. The company's industry, financials, board composition/experience, structure of future raises, and prior litigation all affect pricing. Generally speaking small private companies, with lower risk and stable financials price around $2,500 to $5k per year for a 1 Mill policy. Companies with greater risk and/or distressed financials can expect premiums closer to 7,500k – 15k for a 1 Mill policy. Public companies on the other hand often begin around 30k-40k. It’s important to note that these premiums increase (at a decreasing rate) as that limit is increased. To further demonstrate the current market’s pricing, here are some real world examples:

• Small private manufacturing company with distressed financials (2 Mill of Full D&O): $9,000
• Small low risk non-profit startup (1 Mill Full D&O): $1,200
• Mid Sized tech company with strong financials (5 Mill Full D&O): $22,000
• Mid sized manufacturing company with distressed financials (2 Mill Full D&O): $13,500
• OTC traded public cannabis company with stable financials (2 Mill of Side A Only): $70,000.
• Small pre-revenue life-science company (1 Mill Full D&O): $4,500
• Small publicly traded energy company with stable financials (3 Mill Full D&O): $110,000
• Small non-profit involved with higher risk activities and distressed financials (1 Mill Full D&O): $7,000.
• Small private tech company following an acquisition (5 year 3 Mill Full D&O tail): $98,000.
• Mid-sized private energy company with strong financials (3 Mill Full D&O): $27,000
• Mid-sized non-profit engaged in medium risk activities (3 Mill Full D&O): $22,000

D&O insurance can cover a wide range of claims against both the directors and the company itself – this is particularly true for private companies who have broader D&O policy forms than public companies. There are however some policy exclusions corporate officers should be aware of:

• Professional Service Failures (Errors and Omissions): Claims related to, or arising from the errors, omissions and negligence while providing professional services are excluded, as they belong insured under an appropriate E&O policy. Careful review should be given to this exclusion however, as overly broad wording has the potential to eliminate D&O coverage entirely.
• Cyber and Privacy Failures: D&O policies contain a number of exclusions that can eliminate coverage for cyber claims (such as the bodily and property damage exclusion). Many carriers today however are now including specific cyber exclusions.
• Allegations Of Fraud: Intentionally fraudulent acts committed by executives, and claims alleging illegal personal profit are always excluded. However almost all policies will provide defense costs to the individual(s) in question, until there is a final finding of guilt, at which time the carrier reserves the right to recover any paid costs. Additionally, well crafted severability exclusions will maintain coverage for “innocent insureds” that were unaware of such fraud.   
• Entity and Informal Investigations: D&O policies differ greatly as to the types of investigations covered. Some exclude investigations altogether, some policies will include coverage for enforcement actions against name individuals only, and yet others may limit coverage to formal investigations only. Assessing the scope of coverage is often an exercise itself. For those interested in truly assessing their policies we have a helpful guide here.
• Infighting. Claims brought by one director against another are almost always excluded by the D&O policy’s “insured vs insured” exclusion.
• Antitrust Claims: Many D&O carriers today are beginning to exclude or sublimit claims related to deceptive trade practices and anti-trust violations.
• Product Defects: Some D&O policies exclude claims related to product failures. These can also serve to exclude any resulting investor claims or creditor claims related to the product defect/failure which can be extremely problematic for brands and manufacturers. Due to the fact that these exclusions are not fully standard in the marketplace, policyholders should avoid any policies containing a broad product exclusion.
• Breach Of Contract Claims: Contractual exclusions are common. No policy intends to provide coverage for breach of contract claims, however overly broad versions of these exclusions can over reach, effectively precluding coverage for claims related to certain investment docs, client service contracts, and vendor contracts among others.
• Claims Brought by Majority Shareholders: Companies that have shareholders with significant ownership (of more than 10%) with no board representation, may find that their insurer excludes losses for any claims brought by those holders. Each carrier differs on when and how they apply these exclusions but policyholders should bypass the majority shareholder exclusion whenever able.
• Bankruptcy and Creditor Claims: Shortly after Covid began, many carriers, concerned with the potential of companies failing, began to attach bankruptcy and creditor exclusions. Today these are still commonly attached to policies placed by companies with distressed financials. These exclusions can also preclude coverage for claims brought by convertible note holders and should also be bypassed as aggressively as possible.

There are a number of considerations to be made when structuring coverage, such as:

• Policy Limits: Factors such as: the total invested capital, number and types of investors, type of raise, and systemic industry risk, all play a role in setting an appropriate policy limit. Working with a seasoned broker can help you find the right balance of appropriate limits and policy premiums.
• Other Coverages: D&O policies are often packaged with EPLI, Crime, Fiduciary liability and/or Cyber coverage. We recommend policyholders price each so that they can make an appropriate cost benefit analysis as to which coverages they would like to include.
• Carrier's Claim Payment Reputation: Not all carriers are created equal. When it comes to claim payments, some insurers have stronger reputations than others. Even some very large, well known carriers are notorious for claim declinations. GB&A can help you navigate the market and can advise on the strengths and disadvantages of each insurer at time of policy placement.
• Attorney Selection: As opposed to public company D&O policies that require the insured to control their defense, private company D&O policies are often written on a duty to defend basis. In certain situations however, companies may decide that they would like to control their own defense. In such circumstances, it’s important to notify the insurer at the time your policy is placed - they will also need the counsel’s information, so that they can have them added to the policy’s approved list of panel counsel.
• Advisory Board Members: D&O coverage can be extended to cover a much wider range of officers such as scientific committee members, and advisory board members among others. If you wish to extend the policy to those individuals, it’s important to let your broker know before placing coverage so they can be added appropriately.
• Subsidiaries: When purchasing coverage, companies may decide to cover only the parent company, or extend coverage to its subsidiaries (and their respective corporate officers).
• International Risk: For companies with international offices/directors, the risk can be difficult to navigate. The local laws and the actual operations of the company will dictate what options are available to cover that foreign risk. These range from simple foreign endorsements (on the US D&O policy), to a completely separate D&O policy placed in that particular country. We can help you understand your options.

According to a Chubb survey:

• 26% of private companies experienced a D&O loss in the past 3 years
• The maximum reported loss was 17 Mill
• The average loss was 387k

Claims are on the rise, as a result of:

• Covid business interruptions, supply chain shortages, and economic downturn risk is resulting in distressed financials and an increase in bankruptcies.
• More private companies are turning to crowdfunding to raise equity which is fueling claims
• Antitrust litigation is on the rise, alleging unfair business practices, employee poaching and price fixing.
• Merger and acquisitions are increasing
• From an employment liability standpoint, discrimination, harassment, retaliation and wage and hour claims are all increasing.

• Will policies cover prior acts? Yes, as long as there are currently no known circumstances that could give rise to a future claim, most D&O insurers provide coverage for claims that may allege prior wrongful acts. That said, corporate officers should be on the look out for policies that attach a prior acts exclusion, as some do. 
• Can I file a claim after cancelling my policy? No, unlike general insurance policies that are "occurence based" D&O and management liability policies are "claims made and reported" meaning that the claim must be made and reported during the active policy term. In order to preserve coverage for future claims alleging prior wrongful acts (after a company has shut its doors), policyholders can purchase a a policy "tail" from their carrier which are 1, 3 or 5 years in length, in order to exhaust the statute of limitations. 
• Do I have any protection under my home or umbrella policy? For directors of non profit boards there may be some coverage under your personal policies, however for corporate officers of private and public companies, no, there is no coverage under your personal liability policies.
• Doesn’t my company’s indemnification agreement protect me? Yes, however, there are situations in which your company may not be able to indemnify you, such as when it is insolvent or prevented from doing so by law. Additionally D&O protects the entity itself by providing coverage to the corporate officers so that the company doesn’t have to go into its own pocket to do so.
• We are incorporated, am I protected by the corporate veil? Corporate veils do protect companies…to a certain extent. But court rulings can be unpredictable, and in certain situations corporate status can be bypassed effectively exposing the directors and officers’ personal assets. Claims asserting fraud, claims asserted by creditors that suffered from “gross under-capitalization”, and claims related to the commingling of assets are all examples of claims that can result in a piercing of the corporate veil. Companies that are "closely held" are also more likely to encounter such claims.
• Aren’t corporate officers protected by the business judgement rule? The business judgement rule has long provided a certain layer of protection to officers when making business decisions. However, without getting overly technical, many recent court cases indicate that the business judgement rule does not provide the same level of protection that it had years ago.