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D&O: Get it sorted now
5 February 2009
Growing economic uncertainty and an increase in litigation and shareholder actions has sparked a surge in the demand for directors’ and officers’ (D&O) liability insurance.

Two years ago just 10% of listed companies on the London Stock Exchange were buying D&O insurance – now the figure is closer to 50%.While official figures for Australia are harder to find, we think local company executives and their directors are also taking up this kind of insurance in growing numbers.

All signs point to a "hardening” of the D&O market in price and more restrictions in the cover that policies provide.

A report by commercial insurance data collector Advisen shows American insurers’ losses in D&O cover are starting to exceed the total premiums collected. It forecasts losses to D&O insurers are now running at around $US5.9 billion – which it says will cause rates to increase.

It follows then that the renewal period in Australia may see a reversal of the current trend of broadening policy terms, with a more restrictive approach to policy wording negotiations.

So far, however, a number of D&O insurers have shown a willingness to negotiate more favourable terms for their cover.

There is no better time than now to review and lock in your D&O insurance cover before the hard market gets into full swing.

However, it is important to take the time with us to properly review the policy terms and the cover provided to ensure you are getting maximum protection.

Until recently, most D&O policies contained the "insured v insured” exclusion, which means the policy does not cover claims brought by the company against its own directors or by one insured against another insured.

Some D&O insurers have removed that exclusion. Insurers are also starting to loosen their grip on the "major shareholder” exclusion.

Another area where D&O insurance policies often fall short is that they do not clarify their protection of innocent directors and officers whose colleagues are involved in fraud, dishonesty or misconduct.

Many policies don’t make it clear that the innocent directors and officers remain covered by the policy and that misconduct by another director doesn’t affect their coverage. They also don’t address the risk where the behaviour of one director can prejudice the cover of the innocent directors and officers.

Whether you own a business or are part of the management of a company, you need to take the time to review your D&O insurance to ensure you have the right cover with the best protection.

Talk to us about the different policies on offer and we will help provide you with the advice you need to escape the hardening market and have the best cover to avoid a side-effect of these difficult economic times.
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