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Directors and Officers Professional Liability is Changing

Directors and Officers Professional Liability is Changing

Ah, 2008. The year the housing bubble burst and took everyone from you and your next door neighbor, to the banks, investors and insurance companies down with it.  Unsinkable businesses faltered. Some even failed. Eight years later the world is still in recovery.  As the details continue to shake out, the insurance industry is just beginning to make the necessary changes to properly safeguard against the next financial crisis. One area where drastic changes are being made is Directors & Officers (D&O) professional liability, particularly for financial organizations.  D&O insurers continue to get hit hard by the fallout from decisions made by their insureds that contributed to the latest recession.  Here is what happened, and what you can expect to see, if you haven’t already. What Really Happened? The real estate market was known for decades as a rock-solid investment.  If you have ever purchased a home then you know how rigorous the process is: credit check, income validation, maybe even the promise of your firstborn child if you don’t pay back the loan. People didn’t buy homes unless they could qualify and pay the mortgage, and people always paid their mortgages. Bundling mortgages into mortgage bonds created an investment vehicle that would guarantee returns. Investors couldn’t lose if they bet on the housing market. As time went by, the market got bigger: a strong economy meant more houses being built. Inventory was high, interest rates were low, and truly qualified buyers were hard to come by.  Banks and mortgage brokers had to figure out a way to sell the houses that were being built, so they lowered their...
Why Has the Price of D&O Insurance Increased?

Why Has the Price of D&O Insurance Increased?

As a result of the recent recession, it seems that the price of everything went up: gas, groceries, interest rates, you name it. We’re paying more for everything. In this increasingly litigious society, many lines of insurance have increased, but none more than Directors & Officers (D&O) Liability Insurance.  Have you ever wondered why? We did, so we did some checking around to find out why.   Directors & Officers Is Important Coverage D&O is often the most overlooked type of coverage.  Other lines of coverage like liability and property cover tangible things like slips & falls or a building lost in a fire. What does D&O cover?  Decisions. D&O is also called Professional Management Liability because it covers decisions made by board members, company owners and officers, and even upper management.  The decisions of these leaders can make or break the success of a business, but those leaders shouldn’t be held personally responsible for any fiduciary losses.  That is why D&O coverage is so important.   The Mortgage Bubble Burst Between 2008-2010 a number of banks, mortgage loan companies and other lenders were accused of predatory loan practices, leading to what is known as the mortgage or subprime mortgage crisis.  Home buyers were assured that the already high-priced homes they were purchasing would increase in value over time, but they didn’t. In addition, the home buyers themselves were purchasing 100% mortgage loans with poor or no credit and when the job market collapsed they found themselves upside down on their payments.  Those buyers had to default on their loans, causing even more financial upset in the home lending...

Does Your Business Need D&O Insurance?

Directors & Officers Liability (D&O) Insurance is perhaps one of the most misunderstood types of insurance coverage, but also one of the most valuable.  D&O coverage is most often associated with large publicly held companies, those with boards of directors and stockholders, but if you think that D&O insurance may not be right for your business, think again. D&O Insurance Isn’t Just For Big Business The very name “directors and officers” may lead you to believe that only large companies with boards of directors and stockholders need this coverage.  That isn’t the case. A 2013 private company risk survey found that D&O lawsuits are nearly as common for private companies like yours as they are for publicly held companies.  In fact, 27% of all D&O lawsuits filed in the past 10 years were against private companies versus 33% of public companies. Most startling:  38% of the D&O lawsuits filed against private companies in the last 10 years weren’t filed by stockholders.  They were employee-related claims.  While EPLI would cover most employee-related claims, company officers who are personally sued need D&O coverage to protect them. You Could Be Held Personally Liable You may think that decisions you and your company officers and managers make during the course of business are covered under the company insurance.  However, commercial general liability policies usually exclude financial consequences due to alleged misdeeds. If a lawsuit is filed against any officers or managers personally, the defendant’s personal assets may be at risk.  Even if the lawsuit isn’t filed directly against company officers, the courts could determine that the officers should be held responsible by piercing the...