Mercator Risk Services : Private Companies

Private Companies

D&O Coverage

In addition, most D&O policy forms for privately held companies extend coverage within the D&O coverage part to the company itself (entity coverage). While this is additional coverage, and is therefore typically considered a positive, it can reduce coverage for the directors and officers in some situations. More on this issue is covered at Protecting Ds & Os Personal Assets below.

Coverage Highlights for our Mainstream Solution include

(note that coverage varies by account)

General Terms and Conditions

Duty to defend form with world wide coverage
Broad definition of Insureds, including coverage for Directors and Officers, employees as well as the corporate entity
Severability as respects all exclusions and the application
Spousal/domestic partner extension
Broad definition of subsidiary to include automatic coverage for newly created or acquired subsidiaries, and automatic coverage for joint ventures
Multiple year run off and discovery period options offered
Bilateral discovery
No Hammer clause

Directors and Officers and Company Coverage

Full entity coverage for the Insured Organization
Broad coverage for most private securities claims
Punitive damaged coverage with most favorable venue language, where insurable
Contract exclusion applies only to the Company
Additional limit available for non-indemnifiable acts
All entity exclusions carved back for security holder litigation
Outside directorship coverage for both for profit and not for profit organizations
Functional equivalent coverage for foreign entities
Broad definition of claim
Broad definition of loss
No failure to maintain insurance exclusion
Final adjudication requirement in dishonesty exclusion and personal profit exclusion
Pollution exclusion amended to cover shareholder derivative actions
Broad carve backs as respects the Insured vs. Insured exclusion, including:
Claims brought by any former director or officer solely in their capacity as a securities holder
Claims brought or maintained by any bankruptcy trustee
No Retention (when EPL Coverage Section is elected)

Employment Practices Coverage

Broad definition of employees to include:
Leased or contracted individuals
Independent contractors
Applicants for employment
Full retaliation coverage
Punitive damaged coverage with most favorable venue language, where insurable
No exclusion for reduction in force or mass layoffs
No intentional acts exclusion
Third party coverage built into form and is available for an additional premium
Broad definition of third party
Broad definition of claim
Broad definition of loss inclusive of prejudgment and post judgment awards
Broad Wrongful Act definition
Defense outside the limits available for an additional premium
Loss specifically includes front pay and back pay.
BI/PD exclusion modified not to apply to mental anguish or humiliation
No prior subsidiary exclusion
Favorable other insurance provision

Fiduciary Coverage

Defense costs to be in addition to limits of liability
Claim specifically includes any proceeding before the DOL or the PBGC
Coverage for any type of single employer plans, including ESOPS
Defense costs coverage for 5% and 20% penalties imposed under 502(i) and 502(l) of ERISA
No discrimination exclusion
Automatic coverage for newly acquired or created plans
HIPAA Coverage
Ability to give Notice of potential claims during Discovery Period
Automatic waiver of recourse provision
Full severability of all exclusions
No retention (when EPL Coverage Section purchased)

The professional services exclusion: D&O is not typically designed to cover professional liability claims even if they are brought against the directors and officers. Therefore, D&O policies issued to professional service organizations will typically include a professional services exclusion. More on this issue is covered at D&O & Professional Service Companies below.

As most would expect, coverage is not provided for criminal or otherwise illegal acts.

Protecting Ds & Os Personal Assets

From a director’s or officer’s perspective, the primary purpose of a D&O policy is to cover the personal liability, and therefore personal assets, of the directors and officers. Therefore, care should be taken to inform the applicant of additional coverages that may erode the limits available for directors and officers and to ensure that adequate limits are purchased to protect the directors and officers. See here for more information on combining limits for D&O and EPL coverages.

D&O & Professional Service Companies

D&O is not designed to cover professional liability claims even if they are brought against the directors and officers. Therefore, D&O policies issued to professional service organizations will typically include a professional services exclusion which is intended to exclude any claims arising from the professional services offered by the insured even if they are brought against directors and officers. The intention is that they will be covered by a professional liability policy.

An example would be a large real estate agent. A D&O policy would provide traditional D&O coverage, but would typically exclude any claims arising out of the real estate activities of the company. A real estate agents professional liability (E&O) policy would provide coverage to the company for this exposure, and to its officers, directors and employees.

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