Whenever the business press writes about D&O insurance, I could always count on getting a call from a covered person. Or one who thought they were.
An example is this article from the Globe & Mail in Canada. While the focus is on lawsuits brought by the former Nortel Networks CEO and CFO, who are seeking coverage for defense from civil enforcement actions, there is also mention of lower-level officers who are struggling against mounting legal bills.
Consider former Nortel assistant controller MaryAnne Poland, who had her defense cost coverage terminated 10 months after leaving Nortel in 2005:
According to a motion filed by Ms. Poland in a New York district court earlier this month, Nortel was allegedly urged by its U.S. adviser to cut off legal payments to its ousted officials as a gesture of co-operation with the Washington-based staff of the SEC. Weeks after Ms. Poland dismissed her lawyer, her motion says, she and her three children and husband were detained by U.S. customs officials for an hour and a half before boarding a flight for a Florida holiday.
More officers are going to read these stories closely and start asking questions. While nearly all company bylaws require the purchase of D&O insurance to cover officers and directors against defined legal costs and liability, the reality of growing pressure from regulators pursuing enforcement actions makes it expedient for the “new regime” at the company to turn off the faucet before a determination of liability outside the scope of coverage.
One result? Individual D&O policies, according to Barry Reiter, a partner with Bennett Jones LLP:
As a result of the uncertainty, a growing number of executives are demanding individual D&O insurance contracts with their employers. Mr. Reiter estimates that today about 50 per cent of public company officials are protected by individual contracts.
A prudent practice for the public-company GC would involve seeking counsel on D&O coverage issues from experts other than the policy broker. They are sometimes known for explaining coverage broadly before policy inception or renewal.
But when the government knocks on the door, the same broker is not always so good about returning calls.