Risk Insider: Peter Taffae

D&O: A Brief History

By: | August 15, 2014 • 2 min read
Peter R. Taffae, is managing director of ExecutivePerils, a national wholesale broker. He can be reached at [email protected]

A lot has changed in D&O insurance in the 30-plus years I have been brokering, underwriting and settling claims.

For my first R&I post, I thought a look back would be a good base for future updates on this fascinating and ever-changing insurance coverage.

Prior to the 1980’s, the insurance industry issued two policies for each insured. One was personal coverage, later to become known as Side A, and the second was corporate reimbursement. That coverage later became known as Side B.

Many of the exclusions (but not all), reporting provisions, terms, etc. were on both policies and with rare exceptions shared the same limit of liability. Private companies rarely acquired the coverages but that was because, in my opinion, the litigation landscape then was far less active and costly.

The policies, compared to today’s world, were amazingly broad with few exclusions. This was due to a general lack of litigation frequency and severity.

The intent then, and arguably today among experts, is to protect senior management and the insured’s board against litigation arising from their capacity as a director and/or officer, from third parties. Today’s policies can include Entity Coverage (see below) also known as “Side C,” which is employment practices, etc.

Most of the D&O policy evolution can be attributed to claims experience and an aggressive zeal to compete with broadening “coverage.”  By trying to be “state of the art” (or as some say: throwing in the kitchen sink) fashioning of the coverage has had the opposite effect — reduced coverage.

Let me explain. In 1992, Nordstrom brought litigation against Chubb, alleging that the D&O policy should cover securities litigation brought against the directors and officers and Nordstrom the legal entity.

Nordstrom won the case, and within months the insurance industry began offering, for additional premium, a predetermined “allocation” when a similar scenario such as Nordstrom’s occurred.

It was not long after this that the industry waived any additional premium and any allocation (initially 50/50 or 80/20). This was the most significant change in D&O history.

By trying to be “state of the art” (or as some say: throwing in the kitchen sink) fashioning of the coverage has had the opposite effect — reduced coverage.

By adding SEC entity (Side C) the value of D&O insurance claims experience more than quadrupled. However, the buying community and its advisors neglected to recognize the deficiency it caused: dilution of limit.

Remember, the primary reason to secure D&O insurance is to protect directors and officers when they cannot rely on corporate indemnification.

Policies are written with aggregate limits of liability with the addition of Side C, the most critical protection (Side A) was diluted. An easy fix—  I am sure many are thinking— is the purchase of more limits; this did not occur in all but rare circumstances and, I believe even today, most have lost sight of this.

The next article will address ways one can “fix” this weakness and other significant changes that have occurred that shape today’s D&O environment.

More from Risk & Insurance

More from Risk & Insurance

2018 Risk All Stars

Stop Mitigating Risk. Start Conquering It Like These 2018 Risk All Stars

The concept of risk mastery and ownership, as displayed by the 2018 Risk All Stars, includes not simply seeking to control outcomes but taking full responsibility for them.
By: | September 14, 2018 • 3 min read

People talk a lot about how risk managers can get a seat at the table. The discussion implies that the risk manager is an outsider, striving to get the ear or the attention of an insider, the CEO or CFO.


But there are risk managers who go about things in a different way. And the 2018 Risk All Stars are prime examples of that.

These risk managers put in gear their passion, creativity and perseverance to become masters of a situation, pushing aside any notion that they are anything other than key players.

Goodyear’s Craig Melnick had only been with the global tire maker a few months when Hurricane Harvey dumped a record amount of rainfall on Houston.

Brilliant communication between Melnick and his new teammates gave him timely and valuable updates on the condition of manufacturing locations. Melnick remained in Akron, mastering the situation by moving inventory out of the storm’s path and making sure remediation crews were lined up ahead of time to give Goodyear its best leg up once the storm passed and the flood waters receded.

Goodyear’s resiliency in the face of the storm gave it credibility when it went to the insurance markets later that year for renewals. And here is where we hear a key phrase, produced by Kevin Garvey, one of Goodyear’s brokers at Aon.

“The markets always appreciate a risk manager who demonstrates ownership,” Garvey said, in what may be something of an understatement.

These risk managers put in gear their passion, creativity and perseverance to become masters of a situation, pushing aside any notion that they are anything other than key players.

Dianne Howard, a 2018 Risk All Star and the director of benefits and risk management for the Palm Beach County School District, achieved ownership of $50 million in property storm exposures for the district.

With FEMA saying it wouldn’t pay again for district storm losses it had already paid for, Howard went to the London markets and was successful in getting coverage. She also hammered out a deal in London that would partially reimburse the district if it suffered a mass shooting and needed to demolish a building, like what happened at Sandy Hook in Connecticut.

2018 Risk All Star Jim Cunningham was well-versed enough to know what traditional risk management theories would say when hospitality workers were suffering too many kitchen cuts. “Put a cut-prevention plan in place,” is the traditional wisdom.

But Cunningham, the vice president of risk management for the gaming company Pinnacle Entertainment, wasn’t satisfied with what looked to him like a Band-Aid approach.


Instead, he used predictive analytics, depending on his own team to assemble company-specific data, to determine which safety measures should be used company wide. The result? Claims frequency at the company dropped 60 percent in the first year of his program.

Alumine Bellone, a 2018 Risk All Star and the vice president of risk management for Ardent Health Services, faced an overwhelming task: Create a uniform risk management program when her hospital group grew from 14 hospitals in three states to 31 hospitals in seven.

Bellone owned the situation by visiting each facility right before the acquisition and again right after, to make sure each caregiving population was ready to integrate into a standardized risk management system.

After consolidating insurance policies, Bellone achieved $893,000 in synergies.

In each of these cases, and in more on the following pages, we see examples of risk managers who weren’t just knocking on the door; they were owning the room. &


Risk All Stars stand out from their peers by overcoming challenges through exceptional problem solving, creativity, clarity of vision and passion.

See the complete list of 2018 Risk All Stars.

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]