Who a D&O policy protects
A D&O policy usually has up to three parts. One protects individuals directly when the company can’t or won’t cover them, and is the part meant to protect their personal assets. One repays the company when it does cover its people. One covers certain claims against the company itself.
A policy covers the named company and usually its subsidiaries, but newly created or acquired entities may need to be added. We check your entity chart against the policy, so you know that every company and person you expect to be covered is.
Board seats and people with more than one role
People at investment firms often hold several roles: partner at the fund, director of a portfolio company, manager of another vehicle. A D&O policy covers a person only in the roles it describes. A claim about what someone did in a different role may fall outside it.
The Goggin case below is an example. Two directors were insured under a D&O policy, and the court still found that claims tied to their work for separate investment entities were excluded. We list every role your people hold and check each one against the policy.
Limits, legal fees, and shared coverage
Most D&O policies pay legal fees out of the same limit that pays settlements, so a long defense leaves less for the outcome. There is usually a retention as well, which is the amount you pay before the policy does, like a deductible. If D&O is bundled with E&O or other coverage, three coverages on one policy can mean one pool of money, not three.
When we compare D&O quotes for you, we set out:
- The total limit and which coverages share it
- Any smaller sub-limits for particular kinds of claims
- How quickly a claim has to be reported
- What is excluded, especially earlier matters and misconduct
When to call us
A funding round, an acquisition, a new board member, or a change of ownership are all good reasons. Investors often ask for D&O as part of a round, and a sale usually ends the existing policy’s coverage for anything that happens afterward.
Send us your current policy, or tell us what an investor or a deal requires. We’ll tell you what you have, what’s missing, and what it would take to fix.
What happens when the coverage doesn’t fit
Having insurance doesn’t settle what it covers. The public court record below involves other firms, not Cilantro clients, and each outcome depended on its own facts, policy language, and governing law.
Goggin v. National Union Fire Insurance
Two directors of U.S. Coal also managed separate investment entities. When claims were made about what they did in those overlapping roles, they asked for coverage under a D&O policy.
In November 2018, the Delaware Superior Court ruled that an exclusion for acts in an outside capacity applied to the claims tied to the investment entities. The ruling was about that one policy. It was not a finding of misconduct, and it did not say the directors had no insurance anywhere.
What we check for you: Every role your people hold, including board seats and other vehicles, and which policy covers each one.
Delaware Superior Court opinion, November 30, 2018Scottsdale Insurance v. Byrne
An insurer declined to defend an insured investment vehicle, and a default judgment was later entered against the vehicle. A dispute over its D&O coverage followed.
In January 2019, the First Circuit upheld a $3 million coverage judgment plus interest. The opinion records the judgment. It does not show whether the money was paid.
What we check for you: How the exclusions in your policy read against the kinds of claims your firm could face, since an exclusion’s title alone doesn’t settle whether the insurer has to defend.
U.S. Court of Appeals for the First Circuit opinion, January 16, 2019Further reading
Background from insurers and regulators. These pages describe their own products and rules, and are not an offer of coverage from Cilantro Risk.