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Directors & Officers Liability Insurance Review

Directors & Officers Liability Insurance Review. December 11, 2012 Cobb Galleria Centre Atlanta, GA. Preserving D&O Coverage for Claims and Potential Claims. Claims Made Coverage Issues and When Must D&O Claims be Reported to Preserve Coverage;

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Directors & Officers Liability Insurance Review

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  1. Directors & Officers Liability Insurance Review December 11, 2012 Cobb Galleria Centre Atlanta, GA

  2. Preserving D&O Coverage for Claims and Potential Claims • Claims Made Coverage Issues and When Must D&O Claims be Reported to Preserve Coverage; • Preserving Coverage Through Timely Notice of a Potential Claim; • Implications of Sending or Not Sending a Notice of Circumstances; • Considerations Regarding Purchase of Extended Reporting; • Related/Interrelated Claims Issues.

  3. Common Characteristics of Typical D&O Policies • “Pay On Behalf Of” and not “Duty to Defend” policies • “Advancement of Defense Costs” at the insurer’s option • A Self-Depleting “Limit of Liability” • Up to Four, or More, “Insuring Clauses” • “Claims Made” as opposed to “Date of Occurrence” policies

  4. “Claims Made”vs. “Date of Occurrence” Policies Most D&O policies are Claims Made policies. The Claim must be asserted against a Director or Officer during the policy period, unless extended coverage is provided. Claim is a defined term in the policy. Most D&O policies, afforded the opportunity to provide the insurer with Notice of Circumstance, which if manifested will be treated as a Claim, within the Policy Period in which Notice of Circumstances was first given.

  5. A Typical Policy Definition of Claim • (b) Claim means: • a written demand for monetary, non-monetary or injunctive relief; • a civil, criminal, administrative, regulatory or arbitration proceeding for monetary, non-monetary or injunctive relief which is commenced by; (i) service of a complaint or similar pleading; (ii) return of an indictment, information or similar document (in the case of criminal proceeding); or (iii) receipt or filing of a notice of charges (emphasis added); or • a civil, criminal, administrative or regulatory investigation of an Insured Person: • 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 • in the case of an investigation by the SEC or a similar state or foreign governmental authority, after the service of a subpoena upon such Insured Person. • The term Claim shall include any Securities Claim and any Employment Practice Claim. NU Policy 965-63-88

  6. Discovery/Extended Reporting Period Provision Most D&O policies contain a provision allowing the Insured to purchase an extension of coverage, for a specific period of time, in the event the insurer cancels or non-renews coverage, whereby, if a Claim is made during the Discovery Period, arising from Wrongful Acts that occurred during the Policy Period, it is deemed to be a Claim Made within the Policy Period in which notice was first given.

  7. What Constitutes Adequate Notice? • Notice of Claim (See Definition) • See Definition of Claim • The Claim must be assertedagainst an Insured Individual • The Claim must assert a Wrongful Act in the Insured’s Capacity as an Officer or Director. • Notice of Circumstance (See Conditions): • A Description of the circumstance, or • The nature of the alleged Wrongful Acts • The Nature of the alleged or potential damage, • The names of all actual or potential claimants, • The names of all actual or potential defendants, • The manner in which such Insured first became aware of the Claim, circumstances, … Executive Protection Portfolio (Rel. 10-11/04 Pub.63962)

  8. Notice/Claim Reporting Provision If during the Policy Period or the Discovery Period (if applicable) an Organization or an Insured shall become aware of any circumstances which may reasonably be expected to give rise to a Claim being made against an Insured and shall give written notice to the Insurer of the circumstances, the Wrongful Act allegations anticipated and the reasons for anticipating such a Claim, with full particulars as to dates, persons and entities involved, then a Claim which is subsequently made against such Insured and reported to the Insurer alleging, arising out of, based upon or attributable to such circumstances or alleging any Wrongful Act which is the same as or related to any Wrongful Act alleged or contained in such circumstances, shall be considered made at the times such notice of such circumstances was given.American Home 76194(2/00)

  9. Notice/Claim Reporting Provision If, during the Policy Period, the Insureds first become aware of facts or circumstances which may reasonably give rise to a future Claim covered under this Policy, and if the Insureds give written notice to the Insurer during the Policy Period of: … then any Claim which arises out of such Wrongful Act shall be deemed to have been first made at the time such written notice was received by the Insurer. No coverage is provided for fees, expenses and other costs incurred prior to the time such Wrongful Act results in a Claim. ACE Advantage ALL-20887 (10/06)

  10. Related/Interrelated Claims - Chubb • Related Claim means all Claims for Wrongful Acts based upon, arising from, or in consequences of the same or related facts, circumstances, situations, transactions or events or the same or related series of facts, circumstances, situations, transactions or events. • All Related Claims shall be treated as a single Claim first made on the date the earliest of such Related Claims was first made, or on the date the earliest of such claims is treated as having been made in accordance with (The Reporting and Notice Provisions of the Policy)…. Executive Protection Portfolio (Rel. 10-11/04 Pub.63962)

  11. Interrelated Wrongful Acts - ACE Interrelated Wrongful Acts means all Wrongful Acts that have as a common nexus any facts, circumstance, situation, event, transaction, cause or series of related facts, circumstances, situations, events, transactions or causes. All Claims arising out of the same Wrongful Act and all Interrelated Wrongful Acts of the Insureds shall be deemed to be one Claim, and such Claim shall be deemed to be first made on the date the earliest of such Claims is first made, regardless of whether such date is before or during the Policy Period. All Loss resulting from a single Claim shall be deemed a single Loss. ACE USA, 2003 PF-12797a(06/03)

  12. Claim Scenario • A Notice of circumstances was tendered in policy year one, which may have failed to satisfy the requirements as a proper notice of circumstances. A different, but arguably related matter which manifested into a claim tendered in policy year two. The insured changed policies from American Home to ACE, while electing the discovery option. Where does coverage fall? • May 1, 2010-May 1, 2011 • $5m xs $35m 2nd Excess-U.S. Carrier • $10m xs $25m 1st Excess-Lloyd’s • $15 million Primary - American Home 76194 (2/00) •  May 1, 2011- May 1, 2012 • $5m xs $35m 2nd Excess-Lloyd’s  • $10m xs $25m 1st Excess-U.S. Carrier • $15 million Primary - ACE Advantage ALL-20887 (10/06)

  13. Thank You

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