Most public companies, and many privately owned entities, buy insurance to protect their directors and officers against claims arising from the decisions they make in managing the company. Claims can come from employees, shareholders, customers, competitors, suppliers, creditors and regulatory bodies. In the absence of adequate insurance and indemnification provisions, the personal assets of the individual directors and officers are at risk which is why many directors refuse to accept a position on the board of a company until adequate insurance is put in place.
Whilst the cover available can vary considerably, policies are generally structured around three insuring clauses:
- Insuring Clause A:- Non-Indemnifiable loss cover – provides cover for the individual directors and officers when their company is unable or not permitted to indemnify
- Insuring Clause B:- Company Indemnification – provides cover which will reimburse or pay on behalf of the company where it indemnifies the directors and officers
- Insuring Clause C:- Entity Coverage – provides cover for claims made directly against the Company though this may often be limited only to Securities Claims under policies for public companies
Over $500 million* of limits is available with a range of cover on offer. Most companies buy policies that include all 3 insuring clauses. A-side only cover, most commonly purchased as excess to enhance a programme of A,B and C side coverage, has been purchased by U.S. companies from the Bermuda market since the mid-1980’s. It has recently gained in popularity in the UK due to the fear of increased derivative claims resulting from the newly enacted 2006 UK Companies Act.
Whilst the cover has for many years been purchased by lawyers and accountants, any company providing professional services for its customers faces significant exposure to negligence claims. Cover is often mandatory for professionals working in certain sectors and this means a choice of insurer often exists in the local market. Large law firms, architects and engineering groups are often insured in Lloyd’s where the limit for a primary layer often starts at around $20 million with overseas insurers providing excess layers taking the total available capacity per programme to over $300 million*.
EPL provides cover for claims against the company or individual insureds arising from allegations including, but not limited to:
- Wrongful termination
- Sexual, or other workplace, harassment
- Retaliatory treatment
- Discrimination
- Employment related misrepresentation
- Failure to promote
- Wrongful discipline or deprivation of career opportunity
Claims can be brought by past or present employees and also by those applying to the company for employment so Companies expanding as well as reducing employee numbers may have exposure to claims.
Companies of all sizes buy EPL with the small to medium sized businesses often insured in their local insurance market with low retentions and the duty to defend claims resting with the insurer. Those companies employing 1,000 or more are often insured in the Bermuda market where cover is in excess of much higher retentions but with the insured retaining greater control over the choice of defence counsel, incurring of defence costs and negotiation of the final settlement with the insurer’s consent. Total limits in excess of $300million* are available.
Sometimes referred to as Special Crime insurance, cover is provided in the event of a kidnap, hijack and bodily injury. Cover is also provided for extortion with the threat to kill, injure or abduct or to damage property or tamper with the insured’s products. The policy provides coverage for ransom paid following the kidnapping of an insured person and often extends to include business interruption, legal, medical and psychiatric costs, travel or accommodation expenses incurred by the insured, payment of salaries of insured persons while being held for ransom and/or emergency repatriation of an insured. Cover can be obtained for sub-contractors, creditors and other third parties while visiting the Insured’s premises or facilities and a key element of the cover is the provision of specialist security consultants who work with the insured to achieve the fast and safe release of victims. They can also provide risk management advice and prevention training.
Also known as Pension Trustee Liability in the UK, this insurance protects the administrators, trustees, employees, directors and officers of a company’s pension scheme, 401(k) or other employee benefit plans. Cover is normally provided for the company itself as well as the actual fund and covers claims alleging wrongful acts that have put the plan’s assets at risk. Most policies cover losses arising from:
- Awards and civil penalties ordered by regulators
- Negligence in administration of a plan, its funds and investments
- Inappropriate selection of advisors or service providers
- Breach of responsibilities or fiduciary duties imposed by a federal, state or local governmental body with jurisdiction over employee benefits
- The legal representation expenses incurred in respect of an investigation
- Third party fees, costs and expenses (including lawyers, arbitrators and experts fees) incurred in the defense or appeal of a claim covered by the policy
Total limits up to $200 million* are available.
Cover is provided for loss to the insured company or its subsidiaries primarily as a result of employee theft and dishonesty but policies do not usually cover loss to third parties with whom the insured does business. Insuring clauses may be included to provide coverage for
- Forgery or alteration of money or securities
- Computer theft and/or funds transfer fraud
- Robbery or safe burglary
- Disappearance or destruction of money or securities outside the premises when with a messenger or armoured carrier.
In the US, this insurance also serves to satisfy bonding requirements set forth under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). While somewhat dependent upon the risk presented, substantial limits (in excess of $200 million*) are available.
(* Capacity rated by AM Best as A minus or better though higher limits may be available)
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