When you buy a new car from a dealer, negotiations focus on price. Performance of the vehicle is assumed and backed by a warranty. When you buy a used car from an individual owner, consideration is placed on both price and condition of the vehicle. Often you will have a mechanic inspect a used car to determine its fitness in an effort to avoid costly performance surprises later.
Avoid costly performance surprises from your D&O policy by having it inspected like a used car.
Whether buying D&O insurance for the first time or renewing existing coverage, due diligence in determining policy fitness is highly recommended. Have policies analyzed for potential loopholes and gaps in coverage. Many do not realize that there is no ISO standard D&O policy – each insurance carrier writes their own. Since no two policies are alike, it is important to understand the terms, conditions and extent of exclusions of each policy considered. Once differences are identified, you can then negotiate both cost and performance.
Treating your D&O insurance policy like a used car will help to ensure that it works the way you expect it to when you need it.
Claim Example:
A recent policy review for a nutraceutical company revealed that there was no coverage for mismanagement arising out of any EPLI (Employment Practices Liability) claim. While there was a separate EPLI policy, it specifically excluded cover for D&O claims. Had a claim arisen, the company and or officers would have been liable for the defense costs of the mismanagement claim.
Such a case played out for a San Diego
