"Mind the Gap" - Direct & Officers Liability and Coverage Issues

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Information about "Mind the Gap" - Direct & Officers Liability and Coverage Issues

Published on January 23, 2009

Author: Dano0403

Source: slideshare.net

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Addresses Directors and Officers Coverage and Liability Issues

“ Mind the Gap” – D&O Liability and Coverage Issues Daniel Gerber Goldberg Segalla, LLP

Understanding the Relationship Among Directors and Officers and The Corporation Duty of Loyalty A director sets up a separate business in the same field as the corporation. She orchestrates a mass exodus of employees, and then uses business information from the corporation and attempts to solicit corporate business. When setting up the business the director took trips on corporate jet .

Duty of Loyalty

A director sets up a separate business in the same field as the corporation. She orchestrates a mass exodus of employees, and then uses business information from the corporation and attempts to solicit corporate business. When setting up the business the director took trips on corporate jet .

Understanding the Relationship Among Directors and Officers and The Corporation Duty of Care Directors are warned about unhealthy or risky investments of the companies assets. These warnings are ignored. As the company looses profits dramatically, its board terminates its President with a $140 M severance and hires new president. Is the Business Judgment Rule always a defense? Is there a heightened standard under Sarbanes-Oxley?

Duty of Care

Directors are warned about unhealthy or risky investments of the companies assets. These warnings are ignored. As the company looses profits dramatically, its board terminates its President with a $140 M severance and hires new president.

Is the Business Judgment Rule always a defense?

Is there a heightened standard under Sarbanes-Oxley?

Understanding the Relationship Among Directors and Officers and The Corporation Duty of Obedience Is a director liable for losses sustained from loans, when those loans are authorized by the board, but beyond the charter of the corporation? Is the director obligated for the ultra virus actions of the corporation?

Duty of Obedience

Is a director liable for losses sustained from loans, when those loans are authorized by the board, but beyond the charter of the corporation?

Is the director obligated for the ultra virus actions of the corporation?

Understanding the Relationship Among Directors and Officers and The Corporation Duty of Good Faith Is there such duty imposed on a director and officer? If so, how does it vary from other duties? Must a director and officer always be honest? What if being honest is not what’s in the best interest and welfare of the corporation?

Duty of Good Faith

Is there such duty imposed on a director and officer? If so, how does it vary from other duties?

Must a director and officer always be honest? What if being honest is not what’s in the best interest and welfare of the corporation?

Understanding Covered Risks Whose “side” are you on when there are mixed allegations? A, B, or C? What are the obligations and limitations of indemnity and defense? General counsel is investigated by the SEC, and sued individually in a shareholder derivative suit?

Whose “side” are you on when there are mixed allegations? A, B, or C?

What are the obligations and limitations of indemnity and defense?

General counsel is investigated by the SEC, and sued individually in a shareholder derivative suit?

Mind The Gap The Claim Against Jane Doe ABC Ins. Policy: 01/01/05- 12/31/05 Letter from unhappy client threatening suit: August, 2005 DEF Ins. Policy: 01/01/06- 12/31/06 Suit Filed by Client Corp.: June, 2006 Reported to DEF as soon as practical Denied by DEF!!

The Claim Against Jane Doe

ABC Ins. Policy: 01/01/05- 12/31/05

Letter from unhappy client threatening suit: August, 2005

DEF Ins. Policy: 01/01/06- 12/31/06

Suit Filed by Client Corp.: June, 2006

Reported to DEF as soon as practical

Denied by DEF!!

Watch The Gap In Coverage Claims-made policy purchased on July 1, 1997. Policy renewed annually. Each renewal included retroactive date of July 1, 1997. Suit brought on April 1, 2002 for event occurring in 1998 Same scenario except at the renewal on July 1, 2002, the retro date was accelerated to July 1, 2002.

Claims-made policy purchased on July 1, 1997. Policy renewed annually. Each renewal included retroactive date of July 1, 1997. Suit brought on April 1, 2002 for event occurring in 1998

Same scenario except at the renewal on July 1, 2002, the retro date was accelerated to July 1, 2002.

Understanding Insurance Application Disclosure Requirements Issue : What if 1 corporate representative signs the D&O application which covers a large number of other D&Os? Insurer’s Position : Rescind Policy Insured’s Position : Policy Should Be Severed To Protect Innocent D&Os

Issue : What if 1 corporate representative signs the D&O application which covers a large number of other D&Os?

Insurer’s Position : Rescind Policy

Insured’s Position : Policy Should Be Severed To Protect Innocent D&Os

Exclusion: Fraud/Intentional Acts If an Officer pleads guilty to an SEC proceeding and admits criminal conduct, may the insurer no longer has to pay his or her attorney fees? What if no wrong it admitted? What about the fees of other officers?

If an Officer pleads guilty to an SEC proceeding and admits criminal conduct, may the insurer no longer has to pay his or her attorney fees? What if no wrong it admitted?

What about the fees of other officers?

Exclusion: Known Loss Example: Prior to policy inception, 2 letters arrive from stockholders to corporation stating possible monetary claim. This is not noted on the application.

Example: Prior to policy inception, 2 letters arrive from stockholders to corporation stating possible monetary claim. This is not noted on the application.

Understanding the Director’s or Officer’s Role Officer is general counsel and reviews a contract, approves it and enters into it on behalf of the corporation. He is eventually sued for breach of contract. Does a contractual liability or professional liability exclusion apply?

Officer is general counsel and reviews a contract, approves it and enters into it on behalf of the corporation. He is eventually sued for breach of contract. Does a contractual liability or professional liability exclusion apply?

Bankruptcy Implications Does the Policy belong to the Estate or the D&O? Insured v. Insured Does it bar coverage for Trustee v. Officer?

Does the Policy belong to the Estate or the D&O?

Insured v. Insured

Does it bar coverage for Trustee v. Officer?

“ Mind the Gap” – D&O Liability and Coverage Issues

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