Seven Smart Steps to Protect Your D&O Liability Insurance Assets, Insurance Policyholder Advocate
It is critical that policyholders with exposure to any "Claim" alleging "Wrongful Acts" take steps as soon as possible to better understand and assess their potential D&O liability insurance coverage. The following provides a summary of actions that policyholders may take right now to protect their rights to such insurance coverage.
Review All Insurance Policies. You should review all liability insurance policies—not just those few that you think will provide insurance coverage. You may find that the scope of insurance coverage available to you is broader or narrower than you thought. Claims that trigger D&O liability insurance policies frequently also trigger other liability insurance policies such as Fiduciary Liability insurance policies and/or Errors and Omissions (E&O) liability insurance policies. Moreover, because there is no standard form for a D&O liability insurance policy, and policy language can vary widely, it is advisable to have all potentially applicable liability insurance policies reviewed as soon as possible by persons familiar with the language and the legal decisions interpreting such insurance policies.
Notify All Appropriate Insurance Companies. Timely notice of any Claim can be critical. D&O liability insurance policies are almost always "claims-made," meaning that they cover a Claim first made during the policy period, and some policies also require that notice to the insurance company be given during the policy period or shortly thereafter. Particularly if it is not immediately clear which policy year is implicated, strongly consider seeking legal advice in order to verify that notice is given under the appropriate policies because the insurance companies may argue that the notice may be read to effectively stake the claim in a single policy year. Where a "claim" (as defined) or litigation has not been asserted, but you anticipate one may be asserted, consider providing insurance companies with a notice of a potential claim. Most D&O liability insurance policies contain "notice of circumstance" provisions, which permit the policyholder to give notice of facts or circumstances that may later give rise to a "Claim" as defined under the D&O liability insurance policy. Such notice is often given at the end of a policy period, and any Claim later made arising out of the properly noticed circumstance will "relate back" to the expiring insurance policy. In this context, you should consider the limits and terms available in the expiring and renewal coverage, as well as the specific requirements of the notice of circumstances provision. Also keep in mind that you may be responsible for notifying any insolvent insurance companies, state liquidators, and applicable state insurance guaranty funds.
Seek Insurance Company Consent. Typically, D&O liability insurance policies require the insurance company’s consent to making payments towards covered losses, including settlements and defense fees/costs, and to the retention of defense counsel. Some D&O liability insurance policies require that a Claim be defended by a preferred list of counsel. Although there are a number of arguments for holding an insurance company liable if it refuses to pay or contribute to defense fees/costs incurred before it receives notice and/or approves of defense counsel, it is advisable to seek the insurance company’s consent as soon as possible. Regarding settlement, it is advisable to consult with the insurance company often during the settlement process, and to seek the insurance company’s consent as soon as possible.
Maintain Documents. Insurance claims are fact-intensive, and a complete record may be a vital element of your claim. Understand your obligations regarding document retention so that evidence is not inadvertently destroyed.
Provide Regular Updates. As your insurance claim progresses, it may be helpful to establish a program by which you can regularly update your insurance companies on developments with respect to your claim. In addition, although insurance companies may make unreasonable or unduly, intrusive requests for voluminous information about the Claim, it is important not to ignore requests for information by your insurance company. In addition, insurance companies that are reimbursing defense fees/costs may be entitled to some confidential/ privileged information regarding the Claim and its defense.
Consider Retaining Consultants/Experts. Consider whether you need to hire an experienced consulting firm/insurance expert to assist with any aspects of the insurance claim. In addition, involve in-house or outside counsel early if insurance coverage or other legal issues arise.
Be Mindful During Negotiations with Insurance Companies. Some D&O liability insurance policies contain mandatory alternative dispute resolution (ADR) provisions and/or choice-of-law/choice-of-forum clauses. Where an insurance company contests insurance coverage for some or all of the Claim, or is unduly slow in responding, consider the risk that the insurance company will file a preemptive insurance coverage lawsuit in a jurisdiction/forum it perceives to be more favorable to it regarding the disputed insurance coverage issues, and act to minimize that risk. If the claims-handling process becomes adversarial, remind your insurance companies that their duties of good faith and fair dealing continue even though there is a coverage dispute and, possibly, coverage litigation.
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