IDL: Looking Out for No. 1

First Quarter 2012
Corporate Board Member
by Charles Keenan

While most aspects of group coverage afford liability protection to the individual directors as well as to the company itself, sometimes there may be gaps, especially when there is a large claim that essentially depletes the limits set up under the main policy. To address those gaps, the insurance industry offers singular protection that will afford complete sleep insurance to board members on an individual basis. Joseph Ehrlich, executive vice president, Owens Group, recently took time to answer a few questions about how this type of policy works and how it fits in with a company’s group D&O coverage.

What is independent director liability coverage?
Independent director liability (IDL) coverage provides directors who are “outsiders” to the business with a dedicated layer of protection for actual or alleged breaches of their fiduciary duties. The policies are available for independent directors of public, private, and not-for-profit entities. Usually the policies are structured as an extra or “excess” layer of coverage above what is provided by the standard group policy, but some policies can also be placed on a primary basis. Essentially, the policies operate as a last line of defense for independent directors, protecting the directors’ personal assets when all other sources of recovery available to them have been exhausted or otherwise impaired, such as when a claim is denied or a policy is rescinded.

Does it apply to just one directorship seat or multiple seats for one individual?
The policies can be tailored to address the vagrancies of specific situations and the individual needs of boards and directors. There are two basic types of policies: Independent Director Liability (IDL), which protects all or a portion of the independent directors on a specific board, and Personal Directorship Liability (PDL), which protects an individual director for all the boards on which he or she sits.

Are there any important exclusions or limitations to IDL coverage directors should be aware of?
Exclusions under an IDL policy are similar to what you would find under a standard group D&O policy; however, the terms of IDL policies tend to be very broad, with fewer restrictions. In addition, there is generally complete severability under an IDL policy, whereas under standard group D&O, the acts of certain key officers and directors may be imputed to all other officers and directors, leading to denial of coverage or even rescission. IDL policies are generally nonrescindable.

What are the key advantages to a board member in purchasing an IDL policy?
The key advantage of having IDL is peace of mind. In an environment where stories of corporate malfeasance are constantly in the news and where directors, including independent directors, are regularly sued, IDL provides a permanent and dedicated safety net for independent directors.

Related Articles:
D&O Liability: Avoiding Legal Hot Spots
Say on Pay: Avoiding the Crosshairs
Seven Questions Directors Should Ask About D&O Coverage
M&A Liability: Post-Closing Risk
Simmering Risk: Cyber Attacks and Government Investigations

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