Corporates must review D&O cover earlier – and take it seriously

Executives should review their directors’ & officers’ (D&O) coverage and its triggers earlier if they suspect something is going wrong in a company and they know it’s just a matter of time before a regulator gets involved.

That is the view of John Curran, partner at Fenchurch Law, speaking to Intelligent Insurer at the Airmic Conference 2017. He stressed the need for policyholders to review their existing D&O coverage as while there are policies that have very early triggers, but not all do.

D&O coverage is much broader than it used to be and kicks in much earlier that they used to, but they still don’t kick in early enough, Curran added.

He explained: “With D&O insurance there is particular issue which I think is this: because they protect individuals, and because they kick in when an individual is in significant difficulty due to being investigated by the regulator or being caught up in criminal proceedings, that is going to consume them completely.”

With D&O coverage, a policyholder has the ability to get legal representation which is paid by the insurer before the standard trigger has been pulled.

Curran suggested that the standard trigger is usually pulled when a regulator contacts an individual to say they are a person of interest and they are going to be investigated. Alternatively, the regulator might say they are investigating the company, and hereby demand the individual to attend its offices on a particular day to answer questions.

He continued: “Sometimes you know something is going wrong in a company, and you know it’s just a matter of time, and it’s inevitable before the regulator gets involved. You want to get legal advice at that stage, about what you give the regulator, whether you volunteer to give them anything at all – which may help things – and how you play it strategically.”

The biggest problem a director may face, according to Curran, is when the investigatory body starts investigating, but doesn’t name them as a suspect or doesn’t require them to attend.

Knowing when the policy triggers is therefore very important, he continued, and it’s much better to know a lawyer is holding the policyholder’s hand before they’ve even been named as a suspect.

“That’s not only in your interests, but also in the insurer’s interest,” Curran said. “Because if you do put a foot wrong, its more likely that you’re going to be pursued. And if you are pursued, the insurer is going to have to pay for your defence.”

A director is at a significant disadvantage if the trigger hasn’t been pulled when they knowing something is coming, and Curran advised directors they look into their coverage in greater detail.

“If you’re not inquisitive and you buy something off the shelf you may be putting yourself at risk,” he said.

Today’s stories

Tackling cyber in advancing technologies requires collaboration

Mapfre adopts start-up mentality for building international business

Carnegie-Brown takes charge as Lloyd’s chair, steps down from JLT board

AIG partners with IBM in blockchain venture

Zurich uses accelerator to influence strategies of insurtech start-ups

Insurance start-up Sure raises $8m

Did you enjoy reading this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.