Directors & Officers Liability Insurance Coverage Course Outline

  1. Introduction and Overview
  2. The D&O Policy: Insuring Agreements
    1. Directors and Officers Liability Coverage ("Side A")
      1. Side A-Only D&O Policies
    2. Corporate Reimbursement Coverage ("Side B")
      1. The Corporation is Required To Indemnify Retention Amounts
      2. Complementary Nature of the Two Insuring Agreements
    3. Entity Securities Coverage ("Side C")
      1. Side C Coverage Is Only for Securities-Related Claims
      2. Purchase Is Always Optional
      3. Limits for Entity Coverage of Securities Claims
      4. Retentions for Entity Coverage
      5. Allocation Issues under Entity Securities ("Side C") Coverage
      6. Allocation Provisions in D&O Policies
  3. Covered Persons, Organizations, and Acts under D&O Policies
    1. Covered Persons under D&O Policies
      1. Coverage Only for Acts as a Director/Officer
      2. "Automatic" Coverage for Newly-Created Directors/Officers
      3. Coverage for Nondirectors/Nonofficers
      4. Removal of Officers for Premium Credits
      5. Coverage of Nondirectors/Nonofficers for Securities Claims
      6. Coverage of Past, Present, and Future Directors and Officers
      7. Specialized Policies for Past/Retired Directors
      8. Coverage of Subsidiary Directors and Officers
      9. Coverage of Estates, Heirs, and Legal Representatives
      10. Spousal Coverage
      11. Coverage of Directors & Officers for Outside Activities
    2. Covered Organizations under D&O Policies
      1. Coverage of Newly Created/Acquired Entities
      2. Automatic Coverage Termination Provisions in Large-Scale Mergers/Consolidations
      3. Coverage of Foreign/Non-U.S. Organizations and Operations
    3. Covered Acts under D&O Policies
      1. No Coverage for Bodily Injury and Property Damage
  4. Two Key Definitions: "Claim" and "Damages"
    1. Definition of "Claim"
      1. Written Demand for Monetary or Nonmonetary Relief
      2. Civil Proceeding Commenced by the Service of a Complaint
      3. Criminal Proceeding Commenced by an Indictment
      4. Administrative or Arbitration Proceeding Against any Insured Person
      5. Civil, Criminal, Administrative, or Regulatory Investigations
      6. Request for Extradition or Arrest Warrant for any Insured Person
    2. Covered Damages/Covered Losses under D&O Policies
      1. Items Excluded from "Covered Damages" Definition
      2. Coverage of Punitive Damages
      3. Most Favorable Jurisdiction Provisions
  5. Employment Practices Liability Coverage under D&O Policies
    1. EPL Coverage within D&O Policy Forms
      1. D&O Forms Do Not Exclude Employment-Related Claims
    2. EPLI Endorsements to D&O Policies
    3. Stand-Alone Policies Covering Employment Claims
    4. EPLI Coverage within a D&O Policy: The Package Policy Approach
  6. Defense Coverage within D&O Policies
    1. Covered Defense Cost Items
      1. Salaries of Insureds Are Not Considered "Covered Defense Costs"
    2. Duty To Advance Defense Costs
      1. Recoupment of Uncovered Defense Costs
    3. Duty To Defend versus Non-Duty To Defend Language
      1. Who Controls Defense and Settlement?
      2. Pros and Cons of Duty To Defend versus Duty To Pay Policies
      3. Defense Procedures under Non-Duty To Defend Forms
  7. Limits, Retentions, and Coinsurance under D&O Policies
    1. Policy Limits
      1. Limits under "Packaged" or "Executive Liability" Policies
      2. Defense Costs within Limits
      3. Lack of Coverage for First-Dollar Defense
      4. Potential Bad Faith and Policy Limits Issues under Duty To Defend Policies
    2. Retentions
      1. Retentions in Multiple Claim Situations
    3. Coinsurance
  8. Conditions in D&O Policies
    1. Severability
      1. Application Severability versus Severability of Exclusions
      2. Why Has Severability Become Important?
      3. The Two Types of Application Severability
    2. Cancellation
      1. Noncancelable Policies with Nonrenewal Notice Requirements
    3. Subrogation
    4. Other Insurance
    5. Arbitration Provisions
      1. Why Arbitration Favors the Insurer
      2. Check Arbitration Provisions Carefully
    6. Priority of Payments Provision
      1. Why the Provision Is Important
      2. Limitations of Priority of Payments Provisions
    7. Presumptive Indemnification Provision
      1. Why the Presumptive Indemnification Provision Was Introduced
      2. When the Provision Does Not Apply
  9. Exclusions in D&O Policies
    1. D&O Forms Containing Multiple Sets of Exclusions
    2. Severability Provisions in Policy Exclusions
      1. Exclusions for Which Severability Provisions Usually Apply
    3. Exclusion of Claims Caused by Dishonesty of Directors and Officers
      1. "Final Adjudication" versus "In Fact" Wording
      2. Coverage for Defense
      3. "Final Adjudication" Wording in Conduct Exclusions May Not Always Be Advantageous
    4. Personal Profit Exclusion
      1. "In Fact" Wording Is Preferable
    5. Illegal Payments and Gratuities Exclusion
    6. Exclusion of Claims under Section 16(b) of the 1934 SEC Act ("Short Swing" Profits)
    7. Exclusions Relating to Certain Corporate Activities
      1. Claims from Going Private/Leveraged Buyouts
      2. Claims from Mergers & Acquisitions
      3. Claims from Initial Public Offerings (IPOs)
      4. Claims from Joint Ventures or Partnerships
    8. Return of Remuneration Exclusion
      1. Origins of the Return of Remuneration Exclusion
    9. Prior and Pending Litigation
      1. How the Prior and Pending Litigation Exclusion Applies
    10. Exclusion of Losses Insured by a Prior Policy
    11. Insured versus Insured Exclusion
      1. Rationales for the Exclusion
      2. Key Exception Wording
    12. Failure To Maintain Insurance
      1. Katrina Disaster Underscores the Dangers of Failure To Insure Exclusions
      2. Removing the Exclusion
      3. Terrorism and the Failure To Maintain Insurance Exclusion
      4. Exclusions for Insurance-Related Operations
    13. Wage and Hour Claims Exclusion
      1. Modifying the Exclusion
      2. Favorable Exception Wording
    14. ERISA Liability Exclusion
    15. Bodily Injury/Property Damage/Personal Injury Exclusion
      1. Two Key Variations of the BI/PD/PI Exclusion
      2. BI/PD/PI Exclusionary Wording and Its Effect on Terrorism
      3. Exception Wording When a D&O Policy Covers Employment Practices
      4. Exclusion of "Intentional Torts" and/or "Personal Injury"
    16. Pollution Exclusion
      1. "Based Upon, Arising Out of, Related to" Wording versus "For" Wording
  10. Coverage Triggers in D&O Policies
    1. Operation of Claims-Made Coverage Triggers
      1. The Significance of "First Made" Language
      2. Claims-Made and Reported Policies
    2. Retroactive Dates
      1. Purposes of Retroactive Dates
      2. "Full Prior Acts": Coverage without a Retroactive Date
      3. Always Resist Retroactive Date Advancements When Replacing Coverage
      4. Options Backdating Claims Illustrate the Importance of Retroactive Dates
      5. Retroactive Date Issues in Policies for IPOs
    3. Discovery Provisions
    4. Extended Reporting Provisions
      1. ERPs Do Not Reinstate Remaining Policy Limits
      2. No Coverage for Wrongful Acts during the ERP
      3. Discovery Provisions versus ERPs
      4. Key Variations between ERP Provisions
      5. Runoff Policies
  11. Excess D&O Insurance Policies
    1. Quota Share Excess D&O Programs
    2. Coverage under Excess D&O Policies: Two Basic Types
      1. Follow Form Excess D&O Policies
      2. Independent or "Stand-Alone" D&O Policies
    3. Underlying Limits of Liability Definition
      1. Applying the Underlying Limits of Liability Definition
    4. Limit of Liability Provision
      1. Applying the Limit of Liability Provision
    5. Exhaustion/Depletion of Underlying Limits Provision
      1. Strict versus Liberal Exhaustion of Limits Provisions: A Case Study
    6. Maintenance of Underlying Policies Provision
      1. Two Versions of the Maintenance of Underlying Policies Provision
      2. Implications of the Maintenance of Underlying Insurance Provision
    7. Warranty Clause
    8. Integrated Excess Policies
      1. Two Examples
  12. D&O Insurance for Privately Held Companies
    1. Private Companies Do Have an Exposure to Securities Claims
    2. Unique Exposures Associated with Privately Held Companies
      1. Exposure as Advisers to Management
      2. Exposure from Domination by a Small Group of Shareholders
      3. Exposure from Limited Time Commitment by Directors
      4. Potential Claimants
    3. Distinctive Aspects of Private Company D&O Coverage Forms
      1. Packaged Approach
      2. Flexibility in Limits and Retentions
      3. Broad "Insured Persons" Coverage
      4. Broad Entity Coverage
      5. Duty To Defend
      6. Liberal Cancellation and Nonrenewal Provisions
      7. Broad Extended Reporting Provisions

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