Regulatory Risk

D&O’s Shifting Risks

Navigating the changing compliance environment has never been more challenging for companies.
By: | October 12, 2017 • 4 min read

Corporations obtaining cooperation credit during Department of Justice investigations became virtual whistleblowers on individuals involved in misconduct, a Sept. 9, 2015 DOJ memo intimated.


The memo got Rob Yellen’s attention. The North American product leader for directors and officers and fiduciary liability insurance product at Willis Towers Watson, FINEX, describes the memo as a product of the “individual accountability era.” Enforcement agencies have been criticized, “fairly or not,” he said, “for not holding more individuals accountable during the financial crisis.”

Now, when an employee breaks the law, you are required to notify the DOJ and provide all supporting documents. Moreover, internal efforts to resolve the legal breach should include criminal or civil liability protection for the miscreant.

“Given this, ensuring that your directors and officers liability policy has those heightened enforcement dynamics in mind is essential,” Yellen advised.

Navigating a Potential Labyrinth

The memo was also a game changer for Louis Lucullo, chief underwriting officer, financial lines, Americas AIG. Memorializing more stringent aspects of settlements sought by a regulator would have an impact on Side A of a D&O tower. Companies could possibly be “unable to indemnify if they were providing information about wrongdoing … as a result, we now see companies buy more Side A as a portion of their total D&O limits.”

Rob Yellen, North American Product Leader for directors and officers, and fiduciary liability insurance product, Willis Towers Watson, FINEX

That rings true for John Phelps, director, business risk solutions at Florida Blue and former RIMS president. Though, he notes, much depends on the state “and how liberal your indemnification can be in your bylaws.”

Florida allows one of the broadest indemnification provisions that can be included in bylaws. Phelps noted that “it makes sense to have Side A for protection in case something does slip through your coverage B.”

The complexities of indemnification, Lucullo adds, suggest that Side A alone should not be considered for bankruptcy scenarios. Situations occur “where a company is not able to indemnify or the wrongful refusal to indemnify provides for the advancement of defense costs under the Side A policy.”

Additionally, changes to federal laws impact the way state and other regulatory bodies respond to meet their own legislative obligations. “You might see local regulators step up and put their own regulations in place,” said Yellen.

The danger is the potential for “balkanization.” Suddenly, you’re fighting battles on multiple fronts. There’s a possibility for significant investigative redundancies and costs as you try to comply, and the rules and enforcement demands may vary from one authority to another. “If multiple enforcement authorities are involved, it gets complicated … and ultimately costs more as you respond,” said Yellen.

Shared Coverage Pitfalls

Many are taking a wait-and-see approach, including Shanda Davis, Travelers D&O product manager for Bond and Specialty Insurance. “We’re going to see how that plays out, but certainly states have different regulations today.”


Whatever regulatory gaps the states and local governments need to fill, she said, a comprehensive D&O program is crucial, whether public or private.

“You need that in place, to protect assets of the personal side of [directors and officers] and to attract and retain qualified executives and board members.” No one will join a company if there’s the smallest hint they might go unprotected if unfairly suspected of wrongdoing or if someone else in the company goes rogue.

Yellen added, “You don’t know everybody you’re sharing your coverage with. You want to make sure you’re going to be judged on your behavior, not the behavior of somebody [less] concerned about cooperating with the insurer.”

“You want to make sure you’re going to be judged on your behavior, not the behavior of somebody [less] concerned about cooperating with the insurer.” — Rob Yellen, North American Product Leader for directors and officers, and fiduciary liability insurance product, Willis Towers Watson, FINEX

Full severability of the application “is a critical element if you’re advising someone to buy D&O,” agreed Lucullo, “because you don’t want to invalidate your entire D&O policy due to the acts of one wrongdoer.”

While regulatory investigation coverage for individuals might be covered already, some might view the expansion of regulatory investigation under D&O for the corporate entity “as a dilution of limits,” said Lucullo, because individuals expect coverage. To address that issue, you can simply buy investigation coverage in a standalone policy, he noted. &

David Godkin is a freelance magazine writer based in Toronto. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

2017 Teddy Awards

The Era of Engagement

The very best workers’ compensation programs are the ones where workers aren’t just the subject of the program, they’re a part of it.
By: | November 1, 2017 • 5 min read

Employee engagement, employee advocacy, employee participation — these are common threads running through the programs we honor this year in the 2017 Theodore Roosevelt Workers’ Compensation and Disability Management Awards, sponsored by PMA Companies.

A panel of judges — including workers’ comp executives who actively engage their own employees — selected this year’s winners on the basis of performance, sustainability, innovation and teamwork. The winners hail from different industries and regions, but all make people part of the solution to unique challenges.


Valley Health System is all-too keenly aware of the risk of violence in health care settings, running the gamut from disruptive patients to grieving, overwrought family members to mentally unstable active shooters.

Valley Health employs a proactive and comprehensive plan to respond to violent scenarios, involving its Code Atlas Team — 50 members of the clinical staff and security departments who undergo specialized training. Valley Health drills regularly, including intense annual active shooter drills that involve participation from local law enforcement.

The drills are unnerving for many, but the program is making a difference — the health system cut its workplace violence injuries in half in the course of just one year.

“We’re looking at patient safety and employee safety like never before,” said Barbara Schultz, director of employee health and wellness.

At Rochester Regional Health’s five hospitals and six long-term care facilities, a key loss driver was slips and falls. The system’s mandatory safety shoe program saw only moderate take-up, but the reason wasn’t clear.

Rather than force managers to write up non-compliant employees, senior manager of workers’ compensation and employee safety Monica Manske got proactive, using a survey as well as one-on-one communication to suss out the obstacles. After making changes based on the feedback, shoe compliance shot up from 35 percent to 85 percent, contributing to a 42 percent reduction in lost-time claims and a 46 percent reduction in injuries.

For the shoe program, as well as every RRH safety initiative, Manske’s team takes the same approach: engaging employees to teach and encourage safe behaviors rather than punishing them for lapses.

For some of this year’s Teddy winners, success was born of the company’s willingness to make dramatic program changes.


Delta Air Lines made two ambitious program changes since 2013. First it adopted an employee advocacy model for its disability and leave of absence programs. After tasting success, the company transitioned all lines including workers’ compensation to an integrated absence management program bundled under a single TPA.

While skeptics assume “employee advocacy” means more claims and higher costs, Delta answers with a reality that’s quite the opposite. A year after the transition, Delta reduced open claims from 3,479 to 1,367, with its total incurred amount decreased by $50.1 million — head and shoulders above its projected goals.

For the Massachusetts Port Authority, change meant ending the era of having a self-administered program and partnering with a TPA. It also meant switching from a guaranteed cost program to a self-insured program for a significant segment of its workforce.

Massport’s results make a great argument for embracing change: The organization saved $21 million over the past six years. Freeing up resources allowed Massport to increase focus on safety as well as medical management and chopped its medical costs per claim in half — even while allowing employees to choose their own health care providers.

Risk & Insurance® congratulates the 2017 Teddy Award winners and holds them in high esteem for their tireless commitment to a safe workforce that’s fully engaged in its own care. &


More coverage of the 2017 Teddy Award Winners and Honorable Mentions:

Advocacy Takes Off: At Delta Air Lines, putting employees first is the right thing to do, for employees and employer alike.


Proactive Approach to Employee SafetyThe Valley Health System shifted its philosophy on workers’ compensation, putting employee and patient safety at the forefront.


Getting It Right: Better coordination of workers’ compensation risk management spelled success for the Massachusetts Port Authority.


Carrots: Not SticksAt Rochester Regional Health, the workers’ comp and safety team champion employee engagement and positive reinforcement.


Fit for Duty: Recognizing parallels between athletes and public safety officials, the city of Denver made tailored fitness training part of its safety plan.


Triage, Transparency and TeamworkWhen the City of Surprise, Ariz. got proactive about reining in its claims, it also took steps to get employees engaged in making things better for everyone.

A Lesson in Leadership: Shared responsibility, data analysis and a commitment to employees are the hallmarks of Benco Dental’s workers’ comp program.


Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]