Does your client need D&O or an ancillary coverage?
While directors and officers (D&O) insurance is designed to cover individuals and corporate assets on the broadest threat level, certain exposures may require separate, dedicated policies focused on specific risks.
When claim scenarios are investigated, it may become clear a different policy is needed to pick up the exposure, said Imran Pira, senior vice president and head of management and professional lines at NFP Canada. Although it comes with broad coverage, he added it’s not the intent of D&O coverage to pick up anything and everything.
“That’s why you’re starting to see cyber exclusions on a D&O policy, and although we have seen some cyber claims result in allegations against D&O—claiming lack of oversight or due diligence from the board in this area—most cyber-related incidents [are quite] specific,” he said.
“Insurers want to align specific claims to the appropriate policy that’s been drafted and intended to pick up that exposure.”
Same goes for other coverages related to executive risks, such as employment practices liability (EPL) and fiduciary liability.
“There will be components of EPL coverage on a D&O policy, but the depth of coverage will vary,” noted Pira. “If you are intending to transfer your EPL risk in its entirety, you will have to purchase that dedicated policy or insuring agreement to cover the full gamut of exposure that comes with employment practices for your organization.
“There…might be some overlap in coverage given the broad nature of a D&O policy and overall responsibility of the executives that make decisions on behalf of organizations, but specific claims around those other areas will be picked up under separate and dedicated policies in a broader manner.”
Working with executive risk policies, which have been around for many years, has given brokers experience at navigating “which risks a policy is pointing to,” said Pira. And that’s important because the same approaches can be applied to newer risks like cyber.
“[With those executive coverages,] we have come to an understanding…around what’s intended to pick up what coverage,” he said. “With cyber being a newer product, the core insuring agreements are referenced in different terms by different insurers.”
That creates complexity for brokers.
“As a broker, coverage terms and conditions are the most important thing we’re putting in front of a client,” said Pira. “With new emerging wordings in the cyber world, with insurers developing or updating their D&O wordings, that requires a high level of review and oversight.”
Which means brokers must bring in legal teams, claims advocacy teams and wording experts to determine “what’s in the guts” of the product.
“Rather than taking a wait-and-see approach, we will have hypothetical discussions with our claims advocacy teams or product experts to say, ‘In a situation like this—where a claim is pointing its finger at both a D&O and a cyber policy, or a D&O and a fiduciary policy—what are the steps we need to take to ensure the client is adequately covered, and that the…insurer is taking the responsibility for the given claims?’”
And, when advising clients about which protections or risk transfer strategies to implement, Pira said, it’s important to manage their expectations and make it clear that a D&O policy won’t cover everything.
“There are other exposures that you have in your business which should be dedicated to another policy,” he said.
Feature image by iStock.com/syolacan
