D&O Insurance and Non-Officer Directors

D&O Insurance and Non-Officer Directors - 6/26/2009

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HEADLINES \| SETTLEMENTS AND DISMISSALS \| COURT FILINGS LINKS TO OTHER NEWS \| NEWS ARCHIVE	HEADLINES ARCHIVED SETTLEMENTS AND DISMISSALS ARCHIVED

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D&O Insurance and Non-Officer Directors
Kevin LaCroix

The D & O Diary. June 26, 2009
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EXCERPT: One of the most striking things I have found when talking to corporate officials about D&O insurance is how different the conversation can be when talking to non-officer directors compared to talking to corporate officers. Without meaning to over-generalize, the two groups sometimes have different questions and concerns. And indeed there are very good reasons why the insurance needs and interests of non-officer directors should be analyzed differently from those of the corporation and its officers. By way of background, these issues arise in the context of the traditional D&O insurance policy, which may have potential conflicts of interest built right into its frame. By way of illustration, after I recently made a recent presentation about D&O insurance to a group of noninsurance professionals, one of the audience members (an economist) came up to me to express his astonishment that both a company’s inside officers and its non-officer directors would be insured under the same policy of insurance. When you think about it, it may not make much sense, but that is the way the insurance typically is structured. Not only are there two potentially conflicting sets of individuals yoked together in the traditional D&O insurance policy, but since the mid-90s, the traditional D&O insurance policy has also incorporated so-called “entity coverage” for securities claims, providing the company with balance sheet protection and representing yet another potential conflict within the policy with respect to the interests of the non-officer defendants. In recent years, the insurance marketplace has developed and materially improved a variety of alternative insurance vehicles designed to ensure a dedicated source of insurance protection for the individuals insured under the D&O insurance program.

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