NU Online News Service, June 9, 11:37 a.m. EDT
Executives caught up in a regulatory maelstrom could get some peace of mind over who will pay their legal bills thanks to a new insurance product aimed at streamlining the directors and officers liability claims process, says Willis Group.
Out of its London office, Willis' Financial and Executive Risk division (FINEX Global) says it developed a new directors and officers insurance product to deal with the "increasingly challenging" U.K. regulatory environment. Willis says that new regulations can leave directors and officers "to pay expensive legal bills from a raft of official investigations and enquiries while their companies and insurers dispute whose responsibility it is to indemnify them."
Willis describes its new Director's All Risk Cover, or DARCSTAR, as "groundbreaking," explaining that the new coverage—the brainchild of Willis Executive Director Francis Kean—essentially "eradicates the indemnification uncertainties" in D&O insurance. In short, the brokerage firm says the policy cuts through the traditional complexities of D&O cover to advance all directors' costs in the event of an allocation dispute.
"In traditional D&O insurance policies, insurers expect—and routinely require—companies to indemnify their directors wherever possible before insurers' obligation to pay is triggered," says Kean, who has had 25 years of experience as a litigator specializing in D&O. "In practice this means that directors and officers may be left without cover while insurers and companies argue over whether a particular loss is or is not indemnifiable. Worse still, a gap in cover can arise where a company may be legally permitted to indemnify but chooses not to do so."
In an e-mail response to questions, Kean says that the program was put together because "conventional D&O policies run the risk of being overcomplicated without good reason. The idea was to get back to a form more similar to professional indemnity for managers of companies. After all, there are far fewer coverage disputes in the professional indemnity arena than in D&O."
DARCSTAR is a stand-alone replacement coverage for all forms of conventional D&O, he says. Despite the fact it is a "premium product" the pricing difference from conventional D&O coverage "in this competitive market" is small.
Policies have already been purchased by a "large group of companies with a household name," he says.
Launched in the United Kingdom, plans call for a slow international roll-out in the future.
The new policy has been trimmed from the traditional D&O policy by less than half to eight pages and offers "broad and relevant cover in an easy to understand policy" offering directors and officers "significantly enhanced protection," Willis says.
The unique features of DARCSTAR include:
• One insuring clause that provides direct access for the directors to insurer, as opposed to three D&O cover clauses.
(Editor's Note: Under traditional D&O policies, Side A protects directors and officers when the company cannot indemnify the individuals, Side B, reimburses the organization when it does indemnify individuals, and Side C, is entity coverage.)
• D&O cover in on a broad all-risks basis, which means that the risk is covered unless excluded. A conventional D&O policy lists several pages of insured perils.
• A guarantee from the insurers that they will not seek recovery from the policyholder for indemnifiable loss.
• No compulsory deductibles or retentions other than with respect to securities claims.
• Clear triggers for investigation costs cover across broad spectrum of external and internal investigations and enquiries.
Willis says the coverage is backed by "a panel of highly rated insures led by Allianz, QBE and XL."
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