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November 8, 2010 |
D&O Insurance: Shield or Sieve?D&O policies often can sit on a shelf collecting dust, and their treasures or tragedies will be only uncovered when a lawsuit is filed against directors and officers. At that point, it may be too late to remediate the holes in the policy. When the "D's and O's" learn that the hefty premiums their company had been paying bought a sieve, not a shield, their normal deep concern about an impending lawsuit can quickly become justifiable anxiety. In the current environment, a number of common questions arise.
Banks, their holding companies and their directors and officers are getting sued in the current distressed banking environment. Lawsuits and threats of lawsuits can come from a variety of stakeholders - stockholders, bondholders, other creditors and, if the bank fails, the FDIC. Understanding how your bank's D&O policy works before claims are threatened or filed has value because there are things a bank can do to plug holes in the policy, improve coverage and manage litigation risk in light of the scope of insurance coverage under contract. But none of this risk mitigation or director expectations-management is possible if the policy is collecting dust on the shelf. This article is the first part of a two-part series written in conjunction with Mesirow Financial - a broker of D&O insurance policies for banks - discussing D&O insurance coverage for directors and officers of financial institutions. Schiff Hardin gratefully acknowledges the assistance of Craig Goesel, Senior Managing Director of Insurance Services at Mesirow Financial, for his assistance in co-writing this article. In part one, we revisit the basics of D&O insurance and some coverage points that often prove critical when claims are made. In part two, we will discuss basic considerations for renewing D&O insurance, obtaining "tail" coverage and filing "notices of circumstances" with insurers when receivership or bankruptcy is inevitable. D&O Policy Diagnostic ExamSchiff Hardin has a flat-fee diagnostic protocol it employs for the review of D&O policies for banks. If you are interested in the diagnostic protocol, which includes a written evaluation of your policy coverage and presentation of the results of the diagnostic evaluation to your Board along with recommendations for coverage enhancements, call Schiff Hardin's Pete Rossiter at 312.258.5579, Chris Zinski at 312.258.5504 or Matt Galo at 312.258.5643.ABOUT SCHIFF HARDIN LLPSchiff Hardin LLP provides services to banks, savings associations and other types of financial institutions nationwide and internationally. In addition to our traditional strengths in mergers and acquisitions, securities and financings, bank regulatory compliance, and trust department counseling, we have a particular and increasing focus on corporate governance and fiduciary litigation. Our Finance Group also supports our financial institutions clients in all aspects of their credit and lending businesses, and our Securities and Futures Regulation Group assists them in their securities, investment management and commodities-related businesses. We represent some of the largest banking organizations in the U.S. and overseas, and many community banks and thrifts. For more information, contact us.ABOUT MESIROW FINANCIALMesirow Financial is a diversified financial services firm headquartered in Chicago. They are an employee-owned, private company with more than 1,200 employees in offices across the country and in London. |