Transcript Wednesday, August 6, 2010 MAINSTREET MANGEMENT LIABILITY Thanks to our Continuing Education Providers • Laura S.

Wednesday, August 6, 2010
MAINSTREET MANGEMENT
LIABILITY
Thanks to our Continuing Education Providers
• Laura S. Danoff Educational Enterprises (#30885)
• Wilson Elser Moskowitz Edelman & Dicker LLP (#1760)
Thanks to our Hosts
Venue -
Opening and Welcome
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 Statement of compliance – anti trust
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Moderator –
Panel:
PLUS ANTI-TRUST STATEMENT
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The Need for D&O
Insurance
The Need for D&O Insurance
• Class Action claims
• Shareholder actions
• Employee claims
The Need for D&O Insurance
• Merger & Acquisition claims
– Inherent conflicts of interest
– Duty to shareholders to ensure fair/maximum share
price
– Protect best interest of corporate entity
– Self-serving interest of preserving personal jobs and
security
– Bump-up claims
The Need for D&O Insurance
• Third-party claims
–Creditors
–Customers
–Vendors and suppliers
–Competitors
–Government
The Need for D&O Insurance
• D&O insurance benefits:
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Costly defense expense payment
Provides coverage for non-indemnifiable loss
Protection of personal assets
Allows Ds & Os to remain focused on managing the
company
– Enhances the recruiting efforts of qualified outside
directors
– Balance sheet protection
D&O Policy
Components
D&O Policy Features
Common Insuring Agreements:
Insuring Agreement A
• Company pays Loss on behalf of the Insured
Persons resulting from Claims against Insured
Persons for Wrongful Acts except for Loss which
the Insured Organization pays as indemnification
Insuring Agreement B
• Company pays Loss on behalf of the Insured
Organization resulting from Claims against Insured
Persons for Wrongful Acts which the Insured
Organization pays as indemnification and Loss
resulting against the Insured Organization for
Wrongful Acts
Insuring Agreement C
• Company pays on behalf of Insured Organization
for Wrongful Acts
D&O Policy Features
Important definitions:
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Claim
Insured
Insured Persons
Insured Organization
Subsidiary
Loss
Defense Expenses
Wrongful Act
Outside Directors (Outside Entity and Outside
Position)
D&O Policy Features
Important features:
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Final adjudication v. finding in fact
Absolute v. “for” language
Severability of Exclusions
Retentions
Limit of Liability
Claims Made Extension clause
Cancellation Clause & Non-Renewal
Changes in exposure
Extensions
Conditions
D&O Policy Features
Common features:
– Punitive damages – most favorable jurisdiction
– Modified Defense and Settlement
– Third-Party discrimination – sexual harassment and
discrimination
– Private placement coverages
– Acquisition threshold amended to 25%
– Pollution Exclusion – Insuring Agreement A
– Leased Employees and Independent Contractors
coverage
D&O Policy Features
Common Exclusions:
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Bodily Injury/Property Damage
Pollution
Prior and Pending Litigation
Prior Notices
ERISA
Nuclear
Antitrust
Plagiarism, Copyright
Insured v. Insured
D&O Policy Features
Common exclusions:
– Outside Director Liability – Insured v.
Insured
– Subsidiary Prior Acts
– Contractual
– SEC
– Dishonest/Fraudulent Acts
– ADA compliance expenses
– ERISA/Employee Benefits
– Future pay in failure to rehire situation
SAMPLE D&O CLAIMS
D&O Claim Examples
Claims Example:
– The officer of a small electronics company solicited
and then hired four employees from a large
conglomerate’s subsidiary. The subsidiary
manufactured and sold electronic switches.
Subsequently, the small company began selling
similar electronic switches, but at a substantially
lower price. The conglomerate filed suit alleging
the officer and his company had misappropriated
trade secrets and customer lists by hiring its former
employees. After two and a half years of litigation,
the case was settled for more than $1 million.
Defense expenses for the officer alone were
approximately $500,000.
D&O Market
D&O Market
Types of D&O Policies/Insureds
• Publicly owned (stock companies & public
debt)
• Privately owned
• Not-For-Profit
• Government controlled
• Financial Institutions
D&O Market
• Market conditions:
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Package policy approach is common
Significant competition
Centralized v. local markets
Broad policy terms
Loss control services available
How To Sell D&O
Selling D&O
Why do Main Street (Private Companies)
need D&O Insurance?
– Exposures from customers, clients,
ratepayers, students and consumers:
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Extension/refusal of credit
Debt collection (including foreclosure)
Lender liability
Deceptive trade practices
Trade restraint
Dishonesty/fraud
Cost/quality of product/services issues
Selling D&O
Why do Main Street (Private Companies)
need D&O Insurance?
– Exposures from other third-party claimants
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Environmental/safety
Fiduciary duty breach
Contract disputes
Other third-party claimant issues
Selling D&O
Why do Main Street (Private Companies)
need D&O Insurance?
– Exposures from competitors, suppliers and
other contractors
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Antitrust
Copyright/patent infringement
Contractual disputes
Deceptive trade practices
Business interference
Creditor
Selling D&O
Why do Main Street (Private Companies)
need D&O Insurance?
– Exposures from governmental and
regulatory agencies
• Antitrust
• Dishonesty/fraud
• Other governmental issues
Underwriting D&O
• What is the underwriter looking
for?
Underwriting D&O
• Asset Size
• Employee Count
Underwriting D&O
• Industry
–High-tech/bio-tech
–Financial institutions
–Retail
–Manufacturers
–Professional organizations
–Non-Profits
Underwriting D&O
• Geographic location
Underwriting D&O
• Ownership
–Public
–Private
–Private Placements
Underwriting D&O
• Financial condition
–Balance sheet
–Income statement
–Financial statements notes
Underwriting D&O
• Management
–Experience
–Length of services
–Track Record
Underwriting D&O
• Corporate structure
–Board
–Officers
Underwriting D&O
• Claim history
Questions/Comments
“Time for a short break”
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