D&O and E&O - Is There Any Good News?. John Lewandowski, FCAS, MAAA CNA Insurance Company 2004 Casualty Loss Reserve Seminar Las Vegas - September 13, 2004. D&O POLICY CHARACTERISTICS. Coverage/Profile - What is D&O and E&O?.
John Lewandowski, FCAS, MAAACNA Insurance Company
2004 Casualty Loss Reserve SeminarLas Vegas - September 13, 2004
Directors & Officers Liability Policy – provides coverage for claims arising from the “wrongful acts” – i.e., any act, error or omission -- of insured persons while serving in their capacity as directors or officers. Expanded to included Entity coverage for “securities claims.” D&O coverage is simply a specialized type of Errors & Omissions coverage.
D&O’s have liability for misrepresentations and omissions
Errors & Omissions Professional Liability Policy – provides coverage for claims involving alleged “errors and omissions” arising out of professional services rendered by the insured, e.g. banks, investment advisors, insurance companies, mutual funds…
D&O coverage often includes Employment Practices Liability.
Distribution of Insureds by Segment
By Ownership Type
For Profit by Account Size
Small: Assets < $100M
Mid: $100M < Assets < $1B
Large: $1B < Assets < $10B
Very Large: Assets >10B
Increasing Coverage/Reducing Premium
Expanded capacity/larger limits offered
Expanded coverage, entity coverage eliminated pre-set allocation
Multi-Year contracts, with significant discounts and no re-underwriting
Increasing Claim Costs – Frequency and Severity
2001 – IPO Allocation filings
2002 – Filings against Analyst and Investment Banks; Wave of Corporate Meltdowns Begins – Enron, MCI Worldcom, Tyco, Global Crossing
2003 - Mutual Funds – Late Trading/Market timing
M&A Activity – Banking, Insurance
Deteriorating Investment Market
Limits in Thousands
1933/34 Securities Acts
D&O Liability for misrepresentations, omissions in public offerings, statements
Intended to prevent abuses of securities class action lawsuits.
Heightened Pleading Standard
2002 Sarbanes-Oxley Act
Blackout trading barred
CEO and CFO certifications.
Faster insider trading disclosure
Increased Audit Committee duties.
Increased SEC review
More criminal penalties and fines
Source : Stanford Research
Some interesting Public Company D&O statistics*….
*Source : Tillinghast D&O Report and Stanford Research