VARYING VIEWS OF D&O

Rough Notes, Oct 2004 by Zinkewicz, Phil

An assortment of panels examines different aspects of directors and officers liability

Directors and officers liability insurance has always been a volatile line of business for professional liability underwriters. But its volatility has increased in recent years, primarily as a result of Enron, ImClone and all the other current corporate scandals. In addition, increased merger and acquisition activity has too often led to shareholder lawsuits against directors and officers. So important is this issue that next month's PLUS Annual International Conference is offering a number of panels looking at different aspects of D&O.

The nuts and bolts of directors and officers liability policy provisions and the critical issues surrounding them will be the focus of one of the panel discussions. Titled "Key D&O Policy Provisions-How They Really Work," the panel will be moderated by Phil L. Biais of Biais Excess and Surplus of Texas, Ltd. Panelists will include: Raul Carillo of El Paso Electric Corp., Ernest Martin of Haynes & Boone, Skip Orza of RLI Insurance Group, and Carol Zacharias of ACE USA.

Individual topics to be examined include: insuring agreements, A-side, B-side and C-side; severability provisions; notice provisions; policy definitions of terms such as claims, subsidiaries, etc.; prior and pending litigation wording; change of control provisions; and allocation.

"Our panel is composed of individuals representing the interests of all the parties normally involved in providing directors and officers insurance-the buyer, the broker, the underwriter, company claims counsel, the insured's inside and outside counsel and consultants," says Biais. "We will go into great detail as to what is and what is not covered under the usual D&O policy. Severability is an important concern these days. If one director or officer of a company signs a D&O contract, saying that he or she has no knowledge of potential claims situations and it is later discovered that such a situation was known to the person who signed the contract, other directors and officers may be affected unless severability is included in the contract. Lack of severability places an awful burden on the insured, but many buyers are not aware of this. The purpose of our panel is to bring all this out into the open."

Biais says that a "notice provision" should be included in the D&O contract, clearly defining the insured's responsibilities regarding notifying the insurer when a claim arises or a potential claim exists. The notice provision should also define what the insurer's responsibility is when a notice of claim is received, according to Biais.

"Policy definitions of words such as claims and subsidiaries must be clear because they might be subject to interpretation by the courts at a later date," says Biais. "Too few people really take the time to examine these technical issues. Yet they make up the engine that runs the car. But few people lift up the hood to examine them."

Biais says that his panel format will consist of each member taking on one subject area, followed by discussion and debated by other panel members. After that, the issue will be thrown open for questions from the audience.

Another panel, titled "D&O: 2004 and Beyond-Back to the Future?," will explore the challenges and tough issues arising from D&O's status as a "market in transition," in the face of continued evolution of complex litigation and underwriting issues. Panelists will include Greg Flood of National Union Fire Insurance Co., Tony Galban of Chubb, Peter McKeegan of ARCH Insurance Group, and Jim Nestheide of St. Paul Travelers. Panel moderator will be Jim Fasone of Gallagher Healthcare Insurance Services, Inc.

Topics to be discussed include securities litigation backlog, industry reserves issues, reinsurance recoverables, accounting fraud, application severability, rescinding coverage, and carrier solvency, among others.

Another panel, titled "Under Fire-The D&O Criminal Defendant," will explore high-profile criminal indictments against corporate management, including domestic diva Martha Stewart and world-renowned party host Dennis Kozlowski as well as the recent plea bargains and convictions of numerous Rite Aid executives. This program, which features professionals who have worked on criminal actions or governmental investigations involving prominent directors and officers, will: (1) review the most common white-collar criminal actions against directors and officers; (2) summarize applicable case law on the coverage for, and issues presented by, those actions; and (3) consider litigation management strategies that help mitigate loss.

There will be co-moderators: Eric J. Marier and Karen Reardon, both of Reardon Golinkin & Reed. Panelists will include Michael Adler of Willis, Rebecca M. Lamberth of Alston & Bird LLP, William Slaughter of Ballard Spahr Andrews and Ingersoll LLP and Barbara Van Gelder of Wiley Rein & Fielding LLP.