HAHN AGENCY, INC.HAHN AGENCY, INC.
Directors and Officers Insurance: How to Buy Smart.
Remember, you have to carefully review each directors and officers insurance proposal along with the policy contract to make sure you are receiving adequate protection for your premium dollar. Let's analyze the expanded directors and officers liability policy available from Chubb Insurance. This expanded policy is called an Association Liability policy and expands the named insured to include the Organization along with employees, volunteers, trustees and the directors & officers.
Chubb offers an excellent product with excellent representation. Let's analyze the policy by breaking it down into its four main components: toplist
Two additional areas have to be looked at when searching for the ideal contract. These items are as follows:
The declarations page contains the information particular to the individual insured. The information particular to your organization and coverage details are entered or typed into a declarations page. The following seven items are the most important parts of the Declaration page. Pay special attention to these items when reviewing proposals for your non-profit organization.
| Insurance Company | Nothing is more important than the insurance carrier
yours elect to write your directors and officers insurance.
Purchasing Directors and Officers Insurance is really like
retaining a law firm. The coverage is only as good as the company
standing behind the contract. There are several outside
organizations like the two listed below that can provide financial information on insurance
companies:
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| Named Insured | Is the named insured correct? Are all subsidiaries (especially for profit subsidiaries) and interests listed on the policy? | ||
| Limits of Liability | Is the limit adequate? Are the defense costs included or outside of the policy limit? | ||
| Policy Period | Does the policy run for just one year? Longer terms are available and recommended. | ||
| Deductible | Select highest deductible you can afford. Does the deductible apply to defense costs? | ||
| Reporting Period | Applies to claims made policies. Is the additional premium for this option reasonable | ||
| Retroactive Date | Is there a retroactive date? Pending or Prior Date? What is it? |
The insuring agreement spells out the obligation of the insurance company to the insured. This includes the insuring clause which lists what perils are covered along with definitions of key words in the contract.
This section includes verbatim reprints from the Chubb contract page along with my interpretations in italics.
CHUBB INSURANCE –INSURING AGREEMENT
In consideration of payment of the premium and subject to the Declarations, limitations, conditions, provisions, and other terms of this policy, the Company agrees as follows:
Insuring Clause
The Company shall pay on behalf of an Insured all Loss which such Insured becomes legally obligated to pay on account of any Claim first made against such Insured during the Policy Period or, if exercised, during the Extended Reporting Period, for:
Wrongful Act
Employment Practices
Personal Injury or Publishers Liability
committed, attempted, or allegedly committed or attempted, by such Insured before or during the Policy Period.
Spousal Liability
If a Claim against an Insured Person includes a claim against the lawful spouse of such Insured Person solely by reason of such spouse's status as a spouse or such spouse's ownership interest in property which the claimant seeks as recovery for an alleged Wrongful Act of such Insured Person, all loss which such spouse becomes legally obligated to pay on account of such claim shall be treated for purposes of this policy as a Loss which such Insured Person becomes legally obligated to pay on account of the Claim made against such Insured Person. All limitations, conditions, provisions and other terms of coverage (including the Deductible Amount) applicable to such Insured Person's Loss shall also be applicable to such spousal loss. However, coverage shall not apply to the extent any Claim alleges any act or omission by such Insured Person's spouse.
As you can see, the policy applies
to wrongful acts, employment practices, and personal injury. You should not
consider a directors and officers policy that does not include all of these
perils.
Spousal liability simply extends coverage to the spouse of the insured person defended by the contract with respect to the claim against the insured person.
One of the most important parts of the policy. The definitions give you the scope of coverage provided by the insured perils. You must always read the definition of the insured perils to see what is REALLY covered under the policy.
CHUBB INSURANCE – DEFINITIONS
Claim means a:
written demand for monetary damages, civil proceeding commenced by the service of a complaint or similar pleading, criminal proceeding commenced by the return of an indictment, or formal administrative or regulatory proceeding commenced by the filing of a notice of charges, formal investigative order or similar document, against an Insured for a Wrongful Act, including any appeal therefrom.
Defense Costs means
that part of Loss consisting of reasonable costs, charges, fees (including but not limited to attorneys' fees and experts' fees) and expenses (other than regular or overtime wages, salaries or fees of the trustees, committee members, volunteers, directors, officers or employees of an Organization) incurred in defending any Claim and the premium for appeal, attachment, or similar bonds.
Employment Practices means
a Wrongful Act constituting wrongful dismissal, discharge or termination of employment, breach of any oral or written employment contract or quasi-employment contract, employment related misrepresentation, violation of employment discrimination laws (including harassment), wrongful failure to employ or promote, wrongful discipline, wrongful deprivation of a career opportunity, failure to grant tenure, negligent evaluation, employment related wrongful infliction of emotional distress.
Employment practices coverage is the least standardized coverage from policy to policy. Just because the policy says that employment practices is covered does not mean that you are adequately insured. Let’s compare the definition above with a definition from another insurance company:
"Such Wrongful Acts include, but are not limited to: discrimination, whether based upon race, sex, age, national origin, religion, disability or sexual orientation; sexual or racial harassment; libel, slander or other defamation; invasion of privacy; or interference with or breach of any employment contract, whether oral, written, express or implied."
As you can see, the number of items that would trigger coverage are considerably less. The definition gets around this by including the expression, "not limited to". However, I would not want to depend upon the insurance company’s interpretation of this statement in the event a claim occurs. In the case of employment practices liability it is best that the legal basis that are covered are spelled out.
Financial Impairment means
the status of any Organization resulting from (i) the appointment by any state or federal official, agency or court of any receiver conservator, liquidator, trustee, rehabilitator or similar official to take control of, supervise, manage or liquidate the Organization, or (ii) such Organization becoming a debtor in possession.
Insured
means any Organization or any Insured Person.
Insured Capacity means
the position held by any Insured Person in any Organization, but shall not include any position in any entity other than such Organization, even if such Organization directed or requested that such Insured Person serve in such other position.
Insured Person
means any natural person who has been, now is or shall become a duly elected director or trustee, duly elected or appointed officer, employee or committee member (whether or not salaried) of an Organization, and any natural person acting in a voluntary capacity on behalf of an Organization and at the specific direction of such Organization.
Insured person should include the above and the organization itself, not just directors and officers.
Interrelated Wrongful Acts means
all causally connected Wrongful Acts.
Loss means
the total amount covered under this policy which any Insured becomes legally obligated to pay on account of any Claim made against any Insured for Wrongful Acts for which coverage applies, including, but not limited to, damages, judgments, settlements, costs and Defense Costs. Loss does not include (i) any amount not indemnified by an Organization for which any Insured Person is absolved from payment by reason of any covenant, agreement or court order, (ii) any amount incurred by any Organization (including its board of directors or any committee of the board of directors) in connection with the investigation or evaluation of a Claim or potential Claim by or on behalf of any Organization, (iii) fines or penalties (including punitive or exemplary damages) imposed by law, (iv) the multiple portion of any multiplied damage award, (v) the future salary or benefits of a claimant who has been or shall be hired, promoted or reinstated to employment pursuant to a settlement order or other resolution, or (vi) matters uninsurable under the law pursuant to which this policy is construed.
Does not include punitive damages
Does not include future salary of reinstated employee
Does not insure matters uninsurable under the law.
Organization means
any entity designated in Item 1 of the Declarations.
Personal Injury or Publishers' Liability means
a Wrongful Act constituting false arrest, wrongful detention or imprisonment, malicious prosecution, defamation, invasion of privacy, wrongful entry or eviction, infringement of copyright or trademark, unauthorized use of title, plagiarism, or misappropriation of ideas.
Definition is pretty much the same from company to company.
Policy Period means
the period of time specified in Item 3 of the Declarations, subject to prior termination in accordance with section 20 of this policy.
Policy Year means
the period of one year following the inception of this policy or any. anniversary thereof, or, if the time between inception or any anniversary and the termination is less than one year, the lesser period.
Pollutants
means any substance located anywhere in the world exhibiting any hazardous characteristics as defined by, or identified on a list of hazardous substances issued by, the United States Environmental Protection Agency or a state, county, municipality or local counterpart thereof. Such substances shall include, without limitation, solids, liquids, gaseous or thermal irritants, contaminants, smoke, vapor, soot, fumes, acids, alkalis, chemicals or waste materials. Pollutants shall also means any other air emission, odor, waste water, oil, oil products, infectious or medical waste, asbestos or asbestos products and any noise.
Subsidiary means
any non-profit corporation, community chest, fund or foundation that is exempt from federal income tax as an organization described in section 501 (c)(3) of the Internal Revenue Code of 1986, as amended, if more than 50% of the outstanding securities or voting rights representing the present right to vote for the election of directors in such organization is owned or controlled, directly or indirectly, in any combination, by one or more Organizations.
Any for-profit subsidiaries must be specifically listed in the Declarations in order to be covered.
Wrongful Act means
any error, misstatement, misleading statement, act, omission, neglect, or breach of duty committed, attempted, or allegedly committed or attempted, by an Organization or an Insured Person, individually or otherwise, in their Insured Capacity, or any matter claimed against such Insured Person solely by reason of serving in such Insured Capacity.
The definition of Wrongful Acts from company to company is pretty much the same.
In conclusion, always read the definitions since they will change or perhaps, limit the coverage under the contract. The employment practices definition should be closely examined since the definition will vary greatly from insurance company to insurance company.
The exclusions list what the insurance company does not intend to cover under the policy. These exclusions do give back some coverage for certain circumstances.
Exclusions – Chubb
The Company shall not be liable for Loss on account of any Claim based upon, arising from, or in consequence of:
Any circumstance if written notice of such circumstance has been given under any policy of which this policy is a renewal or replacement and if such prior policy affords coverage (or would afford such coverage except for the exhaustion of its limits of liability) for such Loss, in whole or in part, as a result of such notice.
Will not provide coverage for claims made on prior policy period.
Any demand, suit or other proceeding pending, or order, decree or judgment entered for or against any Insured on or prior to the Pending or Prior date set forth in Item 6 of the Declarations, or the same or any substantially similar, fact, circumstance or situation underlying or alleged therein.
No coverage for claims made prior to retroactive date in declarations.
Any deliberately fraudulent act or omission or any willful violation of any statute or regulation by such Insured, if a judgment or other final adjudication adverse to such Insured establishes such a deliberately fraudulent act or omission or willful violation.
No coverage for deliberate, illegal acts.
such Insured having gained in fact any profit, remuneration or advantage to which such Insured was not legally entitled.
No coverage for unlawful gain by an insured.
Based upon, arising from, or in consequence of (i) the actual, alleged or threatened discharge, release, escape or disposal of Pollutants into or on real or personal property, water or the atmosphere; or (ii) any direction or request that the Insured test for, monitor, clean up, remove, contain, treat, detoxify or neutralize Pollutants, or any voluntary decision to do so; including but not limited to any Claim for the financial loss to any Organization, its security holders or its creditors based upon, arising from, or in consequence of the matters described in (i) or (ii) of this exclusion. Provided, however that this exclusion shall not apply to any Claim for wrongful dismissal, discharge or termination of employment of any Insured Person in retaliation for such Insured Person's actual or threatened disclosure of the matters described in (i) or (ii) of this exclusion.
No coverage for pollution. However, employment practices coverage applies in the event an employee sues the organization for wrongful termination due to whistleblowing of polluting activity.
any written, oral, express or implied contract or agreement; provided, however, that this exclusion shall not apply to (i) Employment Practice, or (ii) that part of Loss which constitutes Defense Costs.
Breach of contract not covered. Cost to defend is covered.
Breach of employment contract IS covered.
The Company shall not be liable for Loss on account of any Claim:
For mental or emotional distress (except with respect to Employment Practices), bodily injury, sickness, disease, or death of any person, loss of use of tangible property whether or not it is damaged or destroyed, or damage to or destruction of any tangible property.
Bodily Injury and Property Damage is excluded. However
Emotional distress for employment practices is provided.
For an actual or alleged violation of the responsibilities, obligations or duties imposed by the Employee Retirement Income Security Act of 1974, the Fair Labor Standards Act (except the Equal Pay Act), the National Labor Relations Act, the Worker Adjustment and Retraining Notification Act, the Consolidated Omnibus Budget Reconciliation Act of 1985, the Occupational Safety and Health Act, amendments to or rules or regulations promulgated pursuant to these laws, or similar provisions of any federal, state or local statutory law or common law. Provided, however, that this exclusion shall not apply to any Claim for retaliatory treatment of an Insured Person with respect to actual or threatened disclosures by such Insured Person of any actual or alleged violation of the Fair Labor Standards Act or the Occupational Safety and Health Act.
Employee Benefits liability coverage is excluded.
For liability of others assumed by any Insured under any written, oral, express or implied contract or agreement except to the extent that an Insured would have been liable in the absence of the contract or agreement; or
Contractual Liability excluded.
Brought or maintained by or on behalf of any Insured except:
A Claim that is a derivative action brought or maintained on behalf of an Organization by one or more persons who are not Insured Persons and who bring and maintain such Claim without the solicitation, assistance or participation of any Insured, or a Claim for Employment Practices.
Insured vs. insured is excluded except those brought on behalf of the organization against an insured person.
Insured vs. Insured does not apply to Employment Practices.
Pretty much standard from company to company.
Remember, this type of coverage will usually have endorsements and exclusions that are particular to your non-profit organization. It is VERY IMPORTANT that you obtain full copies of the endorsements in question and read them over carefully. The only time these endorsements are attached is when the insuring company is uncomfortable with some aspect of your operations.
There will always be an endorsement that makes the overall contract comply with particular laws in your State.
Duty to Defend
This provision obligates the insurance company to defend you for claims. This is better than reimbursing you for claims expenses, since you will not have to come up with funds other than the deductible.
Option to Settle.
Some insurance companies give you the right NOT to settle the claim. However, if you elect not to settle, the insurance company will only pay out their original settlement offer amount plus defense costs.
Since the policy is a legal contract, it will not be written in plain English. However, the wording should not be vague, confusing, or incomprehensible. Avoid contracts that use these tactics to obscure coverage provided by the policy. Remember, READ EVERYTHING. Insist that you obtain the COMPLETE quotation from your agent or insurance company!
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