AIG calls for directors to pay more attention to their D&O policies

The criticism of D&O insurance coverage was sparked by a recent court case in the UK brought by the Financial Conduct Authority (FCA) alleging that four directors of software company iSoft conspired to make misleading financial statements. One of the defendants, former finance director John Whelan, disclosed that his D&O insurer Chubb had cancelled its policy prior to the court case going to trial. Despite being cleared of all charges, the cancellation of the D&O coverage meant that Whelan had to pay his own legal expenses for the two trials and the seven years of investigations—costs which led to him losing his home and his job. In a statement Chubb said that the decision was reached ‘after careful and detailed consideration of the facts’. However the case has led the UK trade body, the Institute of Directors, to state that D&O policies should be ‘fit for purpose’ and ‘not misrepresent the coverage they deliver to directors’. hideAccording to Grant Merrill, Chief Underwriting Officer, Commercial Institutions, Financial Lines at AIG, the iSoft case is an isolated incident rather than an increasing occurrence. “If this was something that happened on a regular basis, then we would hear a lot more about it.” Consequently Mr Merrill does not think the D&O market should be reformed. Instead, directors should take greater interest in the specifics of their policies. A survey carried out between September and December 2012 by Ipsos MORI found that one in four ‘captains of industry’ have little or no knowledge of what is covered under their D&O insurance and nearly 70% only discuss it at the renewal stage. While risk managers and brokers clearly have a role to play in informing the directors about their coverage, Mr Merrill is surprised that there is not a greater level of understanding among directors themselves. “For directors, it’s their personal assets and reputation on the line so they should be motivated to look closely at the policy.” AIG has suggested ten questions that directors should ask when renewing their D&O policies which include the scope of the coverage (size of capacity; inclusion for regulatory investigations), the specifics of the policy (how severability is addressed; whether there is an Order of Payments clause; if it is non-rescindable for fraudulent misrepresentations or non-disclosure) as well as the claims history of the carrier. “Personally I do not see any need to reform the D&O market,” says Mr Merrill. “It is a competitive market and the policies have continued to get broader. D&O is not a commodity insurance product and it is important for directors to know the specifics of their policies and to find a carrier that is right for them.” AIG has recently added coverage for pre-claims inquiries in an attempt to provide coverage for individuals before there is a formal investigation or claim, says Mr Merrill. Meanwhile, the spotlight will fall on D&O insurance again when the Royal Bank of Scotland is scheduled to begin its defence against a shareholder lawsuit on 16 September that accuses the bank of misleading investors in a £12bn rights issue back in 2008. Resolving D&O claims, and indeed any large settlement, is always a hot topic in the world of risk management. Slow or unsatisfactory resolutions can be particularly damaging in these financially difficult times. For this reason Commercial Risk Europe has teamed up with Belrim, the Belgian risk management association, to hold an in-depth and highly topical one-day seminar on the critical subject of claims management. This event will identify the major claims trends to help risk managers identify where their efforts should be focused and where new heads of claims will likely arise. But it will more importantly ask what risk managers really want from their insurers, brokers and other advisers in the event of a claim and what could and should be done by all the parties before, during and after the event to ensure that the policy does what it was intended to do. Taking place on 19 September 2013 at Le Plaza Hotel in Brussels, our Risk Frontiers Claims Management: The Pursuit Of Certainty seminar is free to attend for risk managers.

AIG calls for directors to pay more attention to their D&O policies

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