Lexis’ Insurance Law Blog Features My Post Regarding Independent Director Liability Insurance Policies

Posted on April 21, 2009 by Scott Godes 13 comments

This month, the featured topic over at the Lexis Insurance Law Center is “Current Topics are Misrepresentation and D&O/Professional Liability/Financial Crisis.” Karen Yotis, who does a terrific job running the ILC, has been kind enough to feature one of my pieces, Extra Insurance Coverage for Outside Directors in Times of Financial Uncertainty: An Overview of Independent Director Liability Policies, which you can find by clicking here.

In the introduction of the piece, I give an overview of Individual Director Liability insurance policies, and explain that:

In these times of financial uncertainty, outside directors on corporate boards of directors may request that the companies’ boards companies purchase Individual Director Liability (IDL) insurance for them. Generally speaking, IDL insurance is just for outside or independent directors of a company and, depending on the form in which it is written, may offer independent directors additional insurance protection if the corporate policyholder’s insurers were to attempt to deny or rescind coverage under the policyholder’s directors and officers insurance policy.

I also note that:

There is a dearth of case law on this issue, but commentary on Delaware corporate law, for example, suggests that it would be appropriate for a corporation to buy IDL policies for its outside directors; the intent of the drafters of Section 145(g) of the Delaware Corporation Law appears to recognize that Delaware corporations may purchase insurance for their executives’ benefits, allowing “corporation[s] to do directly what [they] had been doing indirectly for years: reimbursing directors for premiums they paid personally to maintain such insurance.” E. Norman Veasey, Jesse A. Finkelstein & C. Stephen Bigler, Delaware Supports Directors with a Three-Legged Stool of Limited Liability, Indemnification, and Insurance, 42 Bus. Law. 399, 419 (1987). Thus, if a policyholder chose to purchase IDL policies for its independent directors, a policyholder could argue that it was replicating what independent directors could have done previously under Delaware law (i.e., purchase their own individual policies).

I advise independent directors and officers and corporate policyholders that:

A policyholder should consider whether the proposed policy forms, whether individual or group, provide natural person-specific or position-specific coverage. IDL insurance may be flexible on this issue, possibly tailored to the insured’s requests to provide coverage for all independent directors, board committee members, or even individual board members. For example, National Union (an AIG insurance company) stated in a 2004 article that when writing its “IDL Premier” policy, which usually “insure[d] all non-executive directors,” “the definition of ‘insured’ can be amended to include only a limited number of individuals (such as the audit committee) or even only one individual (such as the financial expert).” D&O Insurance in 2003/2004, Briefing Paper, 1449 PLI/Corp 439, 456 (2004).

For additional analysis and advice, click on over to the original post at the Insurance Law Center.

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