It takes an informed buyer to secure the right directors andofficers (D&O) liability coverage at the right price.

From understanding which producers specialize in procuringD&O, to selecting an insurer, to simply getting a feel for howto shop for the coverage in general, consumers must do theirhomework even in a marketplace that remains relatively competitiveand buyer-friendly.

Following is a buyer's guide explaining how to properly prepareto enter the marketplace and secure the right policy to cover acorporation's directors and officers.

10 practical tips to keep inmind when obtaining D&O coverage

1. Cheaper is not always better. Premium doesn'ttell the entire story, as one must also consider breadth ofcoverage, insurer reputation and financial stability.
2. Less is sometimes more. In this era whenso-called blended policies are in vogue, one needs to think twiceabout products such as combined D&O/employment-practicesliability (EPL) insurance, which may reduce available limits to theoutside directors for securities-fraud exposures for the sake ofcovering the corporation for its employment practices liability.Two separate and independent policies may be the betterchoice.
3. Just as all insurers are not alike, all brokers are notalike. Query a broker as to what he or she will do for youin the future, as well as about resources and expertise availablewithin his or her organization. Be sure he or she eanrs thecommission, which is part of your premium dollar.
4. Read, read, read and read some more.Directors, officers and risk managers never can have enoughknowledge in this area, and articles and conferences appearregularly on key issues such as securities liability, employmentpractices, corporate governance and current topical issues such assubprime lending and privacy issues as they impact directors andofficers.
5. Be sure to review impartial and objectiveinformation. Promotional material from insurers andbrokers has obvious biases. Consider a subscription to various paidand independent services to gain more impartial and valuableadvice. In addition, many law firms issue free and periodicnewsletters on important case law and industry developmentspertaining to D&O. To be sure that you are gaining a balancedperspective, sign up for newsletters from both firms that practiceon behalf of policyholders and those that practice on behalf ofinsurers. Because of conflicts, firms generally practicepredominantly on one side or the other.

6. Talk to the D&O insurer before claimsarise. It is helpful to have an interchange of ideas inareas such as the choice of outside counsel for a major claim, theinsurer's litigation management guidelines, and other claim-relatedissues prior to a claim arising, when decisions need to be madequickly and often in the context of coverage issues raised by theclaim.
7. Always communicate openly and honestly. Legalconsiderations aside, many disputes over coverage, litigationmanagement and the application process are alleviated byconstructive dialogue. Rule number one: if you are unclear aboutsomething, ask. Rule number two: if the insurer requestsinformation from you, respond (after appropriate consultation withlegal and insurance professionals), even if to advise that youbelieve it is inappropriate to provide the information.

6. Never lose sight of who the real adversary is—it's theclaimant or plaintiff. Insurers and policyholders shouldbe aligned as part of a defense team subduing their coveragedifferences to the goal of successfully contesting the claimagainst them.
7. Never underestimate the importance of solid, long-termrelationships. While there are many credible alternativesin the marketplace in terms of products and insurers and in manyrespects this is unfortunately becoming more of a transactionalthan relationship business, a solid longstanding relationship isimportant in the event of a significant claim. Most insurers aremore likely to go the extra mile for a long and valuedcustomer.
8. Exercise prudent loss control and risk management inareas such as corporate governance and employmentpractices. In today's litigious environment, directors andofficers must be practical enough to realize that they never willcompletely eliminate the incidence of claims and litigation. Theseverity of these claims can be greatly reduced, however. Thelikelihood of a successful defense can be increased through prudentmanagement.

The Roles ofAgents, Brokers and Other Producers

Because D&O is a sophisticated and somewhat complexinsurance product, only certain insurance brokers have an expertiseand comfort level in providing advice to clients and placing thebusiness.

Typically, this is an area where D&O coverage and marketingspecialists should be sought out in the broker and agent community.Many large, national brokerage firms specialize in D&Ocoverage, but regional brokers also may specialize in this marketarea. Some smaller brokers operate largely as wholesalers,providing expertise to brokers and agents who lack familiarity withthe product and need access to the major D&O markets in theU.S., London, and Bermuda.

In some cases, insurers may also deal through programadministrators or Managing General Agents (MGAs). These entitiesare more than just producers of business to insurers, as they mayalso have a grant of underwriting and claims-handlingauthority.

Selecting anInsurer

The following are factors that should be considered whenselecting a D&O insurer:

• Evaluate the policy form, including the declarations, allendorsements, and the application.
• Evaluate the financial strength and integrity of the insurer.There are many fairly objective reference and source materialsavailable for use by the insurance brokerage and risk managementprofessional for this purpose.
• Evaluate the insurer's claims-handling abilities in the D&Oarea. Prospective insureds can gain information in this areathrough brokers and the legal community. Be aware, however, thatD&O is a very specialized coverage and an insurer's stellarreputation in other claims areas does not necessarily imply likeabilities and service in the D&O arena.
• Evaluate the premium level in relation to the limits ofliability offered and applicable deductions or retentions. Whilethis is an obvious step in the evaluation of any insurance product,price should not be a key factor in the purchasing decision in theD&O area when one considers the potential exposures to themanagement of a corporation.
• Evaluate the experience of important underwriting and claimsprofessionals at a prospective insurer and the effectiveness of theintegration of claims and underwriting. Question whether theservice received on the claims end will be what was promised on themarketing and underwriting end.

This article is designed to provide accurate andauthoritative information in regard to the subject matter covered.It is offered with the understanding that the writer is not engagedin rendering legal, accounting, or other professional service. Iflegal advice or other expert assistance is required, the servicesof a competent professional should be sought.