Directors and officers insurers backdating claims face
Lawsuits are not necessarily the only events that lead to a drain on company resources—investigations, document requests, and dealing with disgruntled customers, vendors, or competitors may also lead to financial loss—for which insurance coverage may be available.
In the D&O context, tremendous litigation has focused on what triggers coverage, i.e., what constitutes a “claim.
Private and Public Companies Have Different Coverage Opportunities Public companies maintain significantly higher limits of liability in their insurance program.
Moreover, “[f]or large public companies, it is common to separate D&O and EPL exposures whereas the majority of private organizations prefer to bundle such coverages.”4 It is interesting, however, that “11% of private organizations reported that they were unsure of the structure of their program.”5 But the D&O marketplace continues to evolve: “The trend over recent years has been towards a general broadening of cover afforded to private companies, their management and their employees.
D&O liability policies provide three distinct coverage parts.
While certain jurisdictions have reasoned that governmental subpoenas may constitute a written demand for nonmonetary relief, others have reasoned that a demand for information or for documents is not a claim triggering event.9 For example, in ,10 the court held that subpoenas and investigative demands did constitute “claims,” where the policyholder was required to produce testimony and documents relating to an ongoing investigation.
A significant number of D&O policies define “claim” as follows: (1) a written demand for monetary, nonmonetary, or injunctive relief; (2) a civil, criminal, administrative, regulatory, or arbitration proceeding for monetary, nonmonetary, or injunctive relief that is commenced by (i) service of a complaint or similar pleading; (ii) return of an indictment, information, or similar document (in the case of a criminal proceeding); or (iii) receipt or filing of a notice of charges; or (3) a civil, criminal, administrative, or regulatory investigation of any Insured Person: (i) once such Insured Person is identified in writing by such investigating authority as a person against whom a proceeding described in Definition (b)(2) may be commenced; or (ii) in the case of an investigation by the Securities and Exchange Commission (SEC) or a similar state or foreign government authority, after service of a subpoena upon such Insured Person.
Some policies define “claim” broadly and specifically list lawsuits, administrative proceedings, investigations, and target letters.
Under Side B coverage, the insurance company agrees to reimburse the corporate policyholders for “loss” indemnified by the company.
Last, under Side C coverage, the insurance company agrees to reimburse the corporate policyholder for liability arising out of certain types of claims made against the corporation itself.