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

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.


That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.


Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

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