A Bulwark for Directors and Officers
A lot can happen in the business world in the space of eight years, and the world of commercial insurance is no exception. For those carriers offering coverage for executives and board members in the event that they are sued by shareholders or some other entity, the past eight years have given rise to a landscape that is much more perilous.
For one, D&O derivative litigation has increased in severity. Nine out of the top 10 largest derivative settlements have occurred since 2019, and more than 10 claims have now settled for more than $100 million dollars. Economic volatility in the form of a pandemic and a high-inflation environment have spurred an increase in private company insolvencies. Regulatory actions are getting increasingly aggressive and expensive.
All of that is fuel for the financial fires that can result in litigation and burn through coverage towers.
“Fifteen years or so ago, we were talking to our private company customers about why you need to buy traditional D&O insurance, and that conversation has largely gone away as these customers now have a better understanding of the many different types of losses that may impact this coverage,” said Keith Freid, product officer, private and nonprofit management liability for Berkshire Hathaway Specialty Insurance (BHSI).
“Unlike fifteen years or so ago, when we were working hard to explain to our private company customers the need for a traditional D&O tower, today everybody understands why they need to buy it. The conversation has now shifted to the need to also purchase Side A excess/difference in conditions (DIC) coverage. We’re working hard to inform our private company customers that Side A excess/DIC is necessary to protect the individuals in the event the broader-than-public-form entity coverage provided by traditional private company D&O policies exhausts those limits or otherwise doesn’t provide coverage for a particular claim based on its own terms and conditions,” Keith continued.
“And I think we’ve done a pretty good job of expanding the Side A market for private companies. Certainly, coming out with a new form and putting it front and center helps in raising awareness about the coverage,” he added.
Brady Head, product leader of D&O for BHSI, said the firm has had plenty of success in offering D&O coverage to customers over time, but that this more perilous landscape demanded a look at the Side A excess/DIC product with the idea of doing a refresh. That meant numerous hours — over years, in fact — spent in discussions with the brokerage community on what form adjustments to the company’s Side A coverage would be most beneficial to customers.
For those who may not be familiar, the Side A excess/DIC coverage Keith and Brady reference provides protection for individuals in D&O claims that are, firstly, non-indemnifiable, and secondly, not paid by the underlying primary insurance because limits have been exhausted or they arise from a “difference in conditions” event. It is the most critical coverage for directors and officers, providing a last line of defense in crisis situations when their company is legally not allowed or financially not capable of protecting them.
So, What’s New?
What’s now known as BHSI’s Executive First Side A++ DIC Directors and Officers Liability Policy incorporates the 30-plus coverage enhancements the BHSI team drafted as a result of its conversations with brokers. Some of its unique features involve a two-form approach based upon broker and insured preference.
One is a Short-Form Offering, which relies on the true excess follow form nature of the coverage plus unique Side A-specific features.
There is also a Long-Form Offering, a more detailed policy listing enhancements traditionally followed by the Short-Form Offering (often found in the ABC contract) in addition to the unique Side A-specific features.
Coverage under both forms will provide almost identically broad coverage: implicitly in the Short-Form Offering via the follow form/difference-in-conditions nature of the coverage, and explicitly in the Long-Form Offering.
Among many other features, both of the new forms include clarity that isn’t always found in competitors’ form of when the coverage is triggered. It adds what they are referring to as the “triggering definitions” of excess event and an industry-leading broad definition of DIC event. They also offer a “Followed Policy Assurance” coverage enhancement to specifically apply the broadest terms between the followed policy and the DIC policy, including but not limited to:
- Aggregate reinstatement of limits
- Broad loss and wrongful act definitions
- Single exclusion applicable to claims
- Severability in all appropriate places
- Full non-rescindability
“We’ve definitely lived our tagline, ‘We Can Tailor That Coverage for You,’ ” Brady said.
The BHSI Differentiators
Keith and Brady recognize that — while critical — broad, clear policy language is just one necessity of a best-in-class D&O program structure.
What sets BHSI apart is what has always set BHSI apart, but it is worth repeating.
For starters, Berkshire Hathaway’s National Indemnity group of insurance companies holds financial ratings of A++ from AM Best and AA+ from S&P Global Ratings*.
“The thing that is unique is Berkshire Hathaway’s financial strength, experienced teammates and brand,” Brady said.
Keith points out that the D&O underwriting and claims executives at BHSI have been doing what they do for a long time. In this line of coverage, experience and consistency really matter.
“Some insurance companies hire underwriters and claims professionals with little to no experience and train them over time,” Keith said.
“At BHSI, our staffing model is a bit different. We hire more seasoned people who have authority to make decisions and a proven track record of performance in the marketplace,” he continued.
In addition to the company’s financial strength and the depth of its underwriting and claims team, Brady said, the company’s claims philosophy — “Claims Is Our Product®” — sets us apart.
In the eight years since BHSI came out with its first Side A form, “We’ve had a lot of public and private company D&O claims and have earned an excellent reputation from brokers and customers for our claims handling and service,” Brady said.
BHSI’s well-documented claims approach also involves having claims executives at the table when coverage is crafted and bound. That assures more clarity about what will be covered and what will be paid and leads to a better customer experience.
A New D&O Dynamic
As stated above, exposures and the litigation environment facing executives and board members has escalated tremendously, making Side A insurance coverage more critical than ever.
The private companies that Keith worked with required some time over the past decade to realize the importance and value of Side A coverage. The changing landscape of derivative D&O litigation has reinforced the value of the coverage for publicly traded companies, which have depended on and used Side A coverage extensively for some time now.
“A well-constructed D&O program that includes a broad Side A DIC policy backed by an experienced and financially sound carrier has been a very popular and viable product all along,” Brady said.
Looks like it just got stronger, too.
To learn more, visit: https://www.bhspecialty.com/.
*For the latest rating, access www.ambest.com.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Berkshire Hathaway Specialty Insurance. The editorial staff of Risk & Insurance had no role in its preparation.
The information contained herein is for general informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any product or service. Any description set forth herein does not include all policy terms, conditions and exclusions. Please refer to the actual policy for complete details of coverage and exclusions.