AJAX, Ontario--(BUSINESS WIRE)--A problem is costing directors plenty because of the lack of understanding of the Directors and Officers (D&O) coverage they believed was in place for the company whose board on which they serve. The Corporation was winding down through a sale and the decision was made by the controller not to renew the existing D&O insurance because there was no longer ongoing activity.
A claim arose alleging negligence on behalf of directors that pre-dated the non renewal of the policy. The incident/claim did not get filed nor even reported to the corporation until some months after the policy had been lapsed. The directors had no prior knowledge of the claim. The insurer denied the claim because it had not been reported within the required “discovery period” stipulated in the policy.
“Directors are on the hook personally for both defense costs and any judgment with no Insurance to rely upon.”
Kip Van Kempen of Best Buy Insurance explains that, “Directors and Officers insurance is a minefield and corporations and their directors need to be sure they have a broker who understands and can explain the coverage. There is no standard wording or regulation covering what is or isn’t covered under a D&O policy and this varies widely among various insurers.”
All D&O policies are written on a “claims made” basis which means that a claim must not only occur during the time the policy is in force but also any claim must be reported during the policy term. Even if directors have no knowledge of an incident, the terms of the policy will still apply. “Not known to directors" does not relieve the reporting requirement.
Warning to all directors… simply asking if coverage is in place and what limit is carried is not good enough. All policies are not the same in their reporting period or scope of what is covered by the wording!
For more explanation about the pitfalls to avoid when arranging proper D&O cover contact Best Buy Insurance. The principles and responsibility of directors is essentially the same whether it be serving on a non profit, private for profit, or a public board.