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The world continues to evolve, and so too does the range of exposures that corporate entities and their employees face. As the pace of change increases, it’s imperative to understand the shifting landscape and the must-have coverages for professionals. Insurance Business America spoke to industry experts about a range of issues impacting a number of key products within the professional liability suite.
Directors & officers liability
Reflecting on the regulatory landscape, Alex Jezerski Jr. of RT ProExec says the most worrisome trend facing directors and officers this year is the continued vigilance of
the US government in holding those individuals accountable for corporate wrongdoing. Specifically, Jezerski refers to a memo circulated by Deputy Attorney General Sally Quillian Yates to all Department of Justice attorneys last September, commonly referred to as the Yates Memo.
“The US Department of Justice has made it very clear that if a company wishes to qualify for cooperation credit in connection with a DOJ investigation, the company must be forthcoming with all facts related to any individuals involved in the alleged misconduct,” Jerzerski says. He adds that the US Securities and Exchange Commission also remains sharply focused on targeting individual directors and officers in its enforcement actions.
“In addition to going after fraud and overt misconduct, the SEC is seeking to hold directors and officers accountable for inattention and failure to follow acceptable corporate governance protocols,” Jerzerski says. Matt Sheehan, senior vice president of financial services for Worldwide Facilities, says the potential impact of the Yates Memo is something he’s discussing with clients. “I think the burden of proof to go after individual directors and officers and managers of companies is going to be lessened, and it’s going to be a more common strategy for regulators,” Sheehan says. “When regulators go after individuals and their business decisions, the plaintiff’s bar takes notice. Usually, there’s litigation to follow.”
Sheehan also highlights the rising number of actions under the False Claims Act, targeting companies attempting to defraud the US government.
“If a director is running a business that provides services or products to the US government, the likelihood that an investigation or action [will be] brought against them is certainly heightened,” he says. “Most people think that that’s just in healthcare billing and reimbursement, but we’re seeing it across private entities that provide services
to the government.”
Sheehan says another regulatory shift gaining momentum is the use of the Americans with Disabilities Act to pursue actions against website operators. Blind or deaf people need reasonable accommodations to a public website, should it be closed captioning or audio descriptions of pictures or help in entering credit card information,” he says. “So companies are spending a lot more money to make their websites accessible to all. But we are seeing plenty of actions along these lines, and the plaintiff’s bar has taken notice.”
As for what separates the best D&O liability products in the market from the rest, Jezerski emphasizes the importance of structuring the policy to provide appropriate
coverage for government actions and investigations.
“Generally speaking, D&O policies have improved steadily in this regard since 2010,” he says. “But there are still significant differences in coverage from policy to policy.”
Sheehan advises watching out for antitrust exclusions. “Claims by competitors in the United States tend to be fertile ground for D&O claims in the private company space, and the absence or addition of an antitrust exclusion is a big differentiator,” he says. “We saw carriers pull back on that in the past couple of years. “The defense costs allocation provision in a private company form is also very big,” he adds. “If a portion of a multiple-allegation claim is covered, there still are a vast number of carriers that will pay 100% of defense costs for an individual insured, which is a tremendous luxury to the insured – not only in not having to pay those costs, but also setting a defense strategy that makes sense because they aren’t trying to get out of it for a minimal cost. They have time to actually formulate a strategy that makes sense for the long run for them and their business and their reputation.”
Sheehan believes that, in the coming years, pre-claims assistance will also differentiate D&O products. “We have a lot of carriers that try to not call a letter or a demand a ‘claim’ so they can avoid providing defense costs, which is the opposite of what we want them to do and the opposite of what they want to do, I think,” he says. “I think it would be better for them to just affirmatively cover pre-claim defense costs where they can get in early, set a strategy, and do some preliminary discovery or fact-finding that’s going to help their case, both helping the insured and the insurer. “I would expect insurers to come out with affirmative pre-claim assistance and really enumerate the services that they will provide. It will encourage insureds to report claims faster, as well as, I think, it’ll just sell in the marketplace, and the insured’s and the carrier’s interests are aligned in this area. So I would expect more robust endorsements to manifest themselves.”
Errors & omissions
Which professions should pay extra attention to their E&O exposures in 2016?
“Large technology companies continue to see many unique claims and will be paying extra attention to exposures related to data privacy, cyber attacks, the Telephone
Consumer Protection Act, social media content and intellectual property,” says Mickey Estey of RT ProExec. “We are seeing this ref lected in the increased insurance limits purchased by many technology companies,” he continues. “With so many technologies being provided on a cloud basis, the exposures are significant for both the large technology companies providing those services, as well as the businesses that are relying on those services on a growing basis for those core functions. As large technology companies move into new areas of service, they often encounter legal issues that are new and untested. This is a trend that will only continue.”
Sheehan cites oil & gas consultants as another category of professionals who should contemplate a heightened focus on their E&O exposures. “Any sector that’s had a downturn … generally is going to see a spike in claims activity because people are looking for the deep pocket. The oil & gas industry generally is full of speculators with a healthier risk tolerance, and they’re generally not litigious. But we would figure that, at some point, some of these bankrupt entities may look to point the finger. Even if the business owner that failed is not ready to point the finger, some bankruptcy estates may do so.”
Continued here.
