Seventy-two percent of respondents to a recent survey on D&O claims issues answered yes to the question, “Have you been involved in an actual claim where the D&O insurer paid more than you believe it needed to, based upon the facts and coverage issues?”
Given a 60-40 split of insurer and policyholder respondents to the survey overall, the 72 percent result indicates that both policyholders and carriers have encountered overpayment situations.
The result was reported without any discussion during a session of the Professional Liability Underwriting Society D&O Symposium, where panelists focused their attention on broker activities and underpayments due to restrictive language. (See related article for details.)
Near the end of the session, however, during an unrelated discussion of Side-A coverage, Kevin Gadbois, executive vice president of executive liability division of Great American Insurance Group in Chicago, highlighted Side-A policies as an area of the D&O market where carriers are making claim payments even when they are not Side-A claims by definition.
Side A of a traditional D&O policy, and separate Side-A excess policies, cover directors and officers in situations where a corporation cannot indemnify them because the corporation is insolvent or legally prohibited from doing so.
Side B covers indemnifiable claims, while Side C covers the corporation or entity if it’s named in a lawsuit.
Side-A policies are “now being accessed in big claims like umbrella covers,” according to Mr. Gadbois.
“If you’ve got $100 million of A-B-C cover, and $50 million of A-side above that, and the claim is $400 million, then there’s enormous pressure to get that $50 million excess–to figure out some way to say this is a non-indemnifiable act,” he explained.
For example, policyholder advocates might argue that even if a company is indemnifying today, it could stop tomorrow. “Then it would be an A-Side claim, so why don’t you just put up your money now,” they might say, according to Mr. Gadbois.
“It’s happening more and more–insurers are paying A-side money for claims that people might argue aren’t A-side claims,” he said. “It’s a dangerous slope now, where people are truly just treating [a Side-A policy] as an excess policy. If the claim gets big enough, [they're saying], ‘We’re going to have to get that A-side money because there’s just not enough money to settle the claim without it,’” he said.