Independent Directors Liability insurance discussed in, “Do directors need separate liability coverage?”
In her article, Do Directors Need Separate Liability Coverage, Corporate Secretary magazine, author Elizabeth Judd writes about Independent Director Liability insurance policies. The article opens:
IDL insurance protects directors outside the limits of D&O coverage and record increase in securities suits makes IDL a good option.
Almost all public companies buy directors and officers liability (D&O) insurance, providing officers and boards with protection against claims not indemnified by the company. But when companies unravel, they often do so spectacularly– and given how a typical D&O policy is structured, directors may not be as well protected in the event of a complete corporate meltdown as they might like.
That’s where independent director liability (IDL) insurance comes in. A specialized form of D&O that’s sold separately, IDL protects only the directors and would pay out even if all limits within a company’s D&O policy were exhausted.
There is a really nice discussion about IDL insurance coverage in the article. Elizabeth quotes Kevin LaCroix, of The D&O Diary, and other well-known sources on the issue of insurance coverage for directors and officers. Elizabeth also interviewed and quoted me in the article, writing:
Scott Godes, [formerly] counsel at Dickstein Shapiro and author of the Corporate Insurance Blog, says the beauty of IDL is that the policies are marketed as nonrescindable.
‘When D&O claims get messy or expensive, insurance firms have remarkably creative lawyers who can find ways to deny coverage or rescind the policy,’ he points out. ‘I saw one advertisement stating that IDL is insurance for insurance – if the insurance company is marketing these policies as rescission-proof, that should be a good sign.’
If you deal with insurance coverage issues, directors and officers issues, or securities issues, the article is worth a read. IDL insurance is a pretty interesting product, and Elizabeth does a nice job of outlining the coverages and the pros and cons of buying such a policy. So click on over to Do Directors Need Separate Liability Coverage
and read the whole thing.
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Scott, very interesting perspective and information. Thanks for sharing and providing another arrow in my quiver! It is always enlightening to get the legal view on the situation.
Mark
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We at GOS-law (Gross Orad Schlimoff & Co.) find this discussion of particular interest. We specialize in D&O insurance and have found that only regular D&O policies and not IDL policies are issued in Israel.
After examining the phenomenon it seems that there are two main reasons for this:
Firstly, in Israel, most directors serve more than one company. This raises underwriting difficulties for insurers in the field. If the policy holder is the company acquiring cover for its directors, the underwriting is relatively straightforward as the insurer has to deal with just one company, whereas underwriting a policy for a director serving several companies is significantly more complicated.
Secondly, there is a serious problem regarding recognition of the IDL policy premium as a tax-expense.
Do similar difficulties arise in other jurisdictions?
Rena Egulsky, Adv.
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