Talk to the D&O insurer before claims arise. It is helpful to have an interchange of ideas in areas such as the choice of outside counsel for a major claim, the insurer's litigation management guidelines, and other claim-related issues prior to a claim arising, when decisions need to be made quickly and often in the context of coverage issues raised by the claim.
Always communicate openly and honestly. Legal considerations aside, many disputes over coverage, litigation management and the application process are alleviated by constructive dialogue. Rule number one: if you are unclear about something, ask. Rule number two: if the insurer requests information from you, respond (after appropriate consultation with legal and insurance professionals), even if to advise that you believe it is inappropriate to provide the information.

Never lose sight of who the real adversary is—it's the claimant or plaintiff. Insurers and policyholders should be aligned as part of a defense team subduing their coverage differences to the goal of successfully contesting the claim against them.
Never underestimate the importance of solid, long-term relationships. While there are many credible alternatives in the marketplace in terms of products and insurers and in many respects this is unfortunately becoming more of a transactional than relationship business, a solid longstanding relationship is important in the event of a significant claim. Most insurers are more likely to go the extra mile for a long and valued customer.
Exercise prudent loss control and risk management in areas such as corporate governance and employment practices. In today's litigious environment, directors and officers must be practical enough to realize that they never will completely eliminate the incidence of claims and litigation. The severity of these claims can be greatly reduced, however. The likelihood of a successful defense can be increased through prudent management.

The Roles of Agents, Brokers and Other Producers

Because D&O is a sophisticated and somewhat complex insurance product, only certain insurance brokers have an expertise and comfort level in providing advice to clients and placing the business.

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

In some cases, insurers may also deal through program administrators or Managing General Agents (MGAs). These entities are more than just producers of business to insurers, as they may also have a grant of underwriting and claims-handling authority.

Selecting an Insurer

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

Evaluate the policy form, including the declarations, all endorsements, and the application.
Evaluate the financial strength and integrity of the insurer. There are many fairly objective reference and source materials available for use by the insurance brokerage and risk management professional for this purpose.
Evaluate the insurer's claims-handling abilities in the D&O area. Prospective insureds can gain information in this area through brokers and the legal community. Be aware, however, that D&O is a very specialized coverage and an insurer's stellar reputation in other claims areas does not necessarily imply like abilities and service in the D&O arena.
Evaluate the premium level in relation to the limits of liability offered and applicable deductions or retentions. While this is an obvious step in the evaluation of any insurance product, price should not be a key factor in the purchasing decision in the D&O area when one considers the potential exposures to the management of a corporation.
Evaluate the experience of important underwriting and claims professionals at a prospective insurer and the effectiveness of the integration of claims and underwriting. Question whether the service received on the claims end will be what was promised on the marketing and underwriting end.

This article is designed to provide accurate and authoritative information in regard to the subject matter covered. It is offered with the understanding that the writer is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought.

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