Professional Liability Insurance
DIRECTORS AND OFFICERS LIABILITY
In recent years, increased competition has broadened the coverage associated with Professional Liability Insurance, to include protection for the corporation against litigation and other judgments. Whether it be Directors and Officers Liability Insurance, Tail Coverage for officers and directors who are vulnerable to personal litigation, or Employment Practices Liability that provides a safeguard against wrongful termination, sexual harassment and discrimination suits, each serves a distinct purpose that must be considered when evaluating your various insurance choices. Because there are so many variables with this type of insurance, FGIB works to keep you informed at every level so you can make a sound purchasing decision, based on comprehensive knowledge of the different products on the market. Let’s take a closer look at the differences, so you can see what works best for your company or organization.
What has changed?
Instead of insuring only directors and officers, the corporation may be added by purchasing Entity coverage.
Why is that important?
Originally, the Directors and Officers Liability policy would reimburse individuals and the corporation for their out-of-pocket expenses in behalf of the directors and officers only. There was no coverage for litigation involving the corporation, which created an allocation of the cost between directors and officers and the corporation (usually 50/50 unless a different allocation was negotiated). The Directors and Officers Liability policy may include coverage for Initial Public Offerings, Mergers, Acquisitions, Shareholder Liability, Lender Liability, and Employment Practices Liability (wrongful termination, sexual harassment, discrimination).
Directors and Officers Liability insurance is written with an aggregate limit, which includes the cost of litigation and any judgment or settlement, regardless of the number of lawsuits. Some Directors and Officers Liability policies are issued with a double aggregate limit, which adds some assurance that the coverage will not be exhausted.
TAIL COVERAGE
When mergers and acquisitions occur, a requirement for Tail coverage exists. The Directors and Officers Liability policy may be extended for a number of years to cover litigation, which is initiated after a merger or acquisition, against directors and officers and the corporation, for acts which have occurred prior to the merger or acquisition date. Directors and officers are extremely vulnerable to the cost of personal litigation without this insurance and indemnification from the surviving corporation. Should a director or officer rely solely upon a letter of indemnification and forego Directors and Officers Liability Tail coverage,they may find themselves in two lawsuits. One is to defend themselves if litigation occurs. The other is to enforce a letter of indemnification. This could happen if the indemnifying corporation becomes bankrupt, was merged with another corporation, or simply failed to recognize the obligation. The Tail coverage may be purchased for a number of years. The decision to determine how long Tail coverage is necessary is based upon practical situations or statutes of limitation.
EMPLOYMENT PRACTICES LIABILITY
The proliferation of employee lawsuits against employers has become the subject of talk shows, newspaper articles, and a buzzword between employees. Some Plaintiff lawyers specialize in this employee/employer litigation which promotes significant expense, regardless of the merit of the employee complaint.
Employment Practices Liability Insurance covers wrongful termination. sexual harassment, and discrimination.
Discrimination complaints may be based upon race, age, and sex. This insurance covers existing and potential employees.
Wrongful Termination includes not only the firing of an employee, but the transfer to or placement in another position of employment within the firm which an employee construes to be "constructive" termination (demotion or failure to promote).
Sexual Harassment means many types of behavior, including physical or verbal misconduct, and the display of inappropriate posters, magazines, or books.
Employment Practices Liability covers the cost of defense, court costs, and any ultimate judgment or settlement, which results from these covered allegations after a nominal deductible is satisfied. The insurers have a "duty-to-defend" the insured, by providing legal counsel and paying costs as the litigation progresses. The other coverage option is to indemnify the insured for these costs, allowing them their choice of counsel, subject to insurance company’s approval.
We recommend the Employment Practices Liability be written under a separate contract, rather than be included in the Directors and Officers Liability coverage, providing an aggregate limit apart and separate from the D&O Liability limit. The advantages are that a nominal deductible, much lower than the deductible under the D&O Liability is available at a reasonable premium. Should a loss occur, the amount of money expended does not reduce the D&O Liability aggregate.
