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D&O Liability: Now It’s Personal

Q: What is a D&O policy intended to do?

A: D&O policy is intended to protect directors and officers against allegations of wrongful conduct
when they are acting in their capacity as directors and officers.

Q. Who are bringing the claims?

A: Based on a Singapore survey in 2005/2006, the main threats are customers, regulators/government,
company, institutional investors, and banks, minority shareholders. Others are employees, competitors,
and receivers/liquidators.

Q. What are the areas of claims?

A: Based on the same Singapore survey in 2005/2006, the main areas are financial disclosure,
accounting fraud, interested party transactions, conflict of interest, employment practices, overseas
operations, outside directorship liability, management leading to poor financial performance, trading
while the company is insolvent.

Q: Who is insured under a D&O policy?

A: for American Home Assurance (AHA), D&O policy covers any past, present or future director, officer
or senior manager of a corporation. Please see definition of “Director”.

Q: What is the general scope of cover?

A: for AHA D&O policy, there are: Director Protection (side A)
• a Management Error Claim;
• Employment Practice Error Claim;
• Outside Entity Director Claim, and Non-executive director claim;
• an Occupational Health and Safety Action;
• a Pollution Action;
• a Shareholder Pollution Action
Company Protection (side B)
• Reimbursement made to directors
• a Company Employment Practice Error Claim - such cover will “dip” into insured amount
• a Company Securities Claim – such cover will “dip” into insured amount
• emergency cost
Company Protection (side C)
• emergency cost
• an Inquiry

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Q: Please explain side A and side B
A: D&O policy basically has 2 core covers:"Side A": Indemnification by Insurer of Director’s loss to the
extent not indemnified by Company.

Typical “Side A" wording

The insurer shall pay the loss of each insured resulting from any "claim first made against the insured
during the policy period for any wrongful act in the insured's capacity as a director, officer or
employee of the company except for and to the extent that the company has indemnified the insured.

Side A is a financial protection for Individuals who are insured. It applies without deductible.

"Side B": Company reimbursement (but after Retention or Deductible)

Typical "B" side wording

The insurer shall pay the loss of the company resulting from any claim first made against the insured
during the policy period for any wrongful act in the insured's capacity as a director, officer or
employee of the company but only when and to the extent that the company has indemnified the
insured for the loss.

This coverage is also called Company reimbursement. It applies after the Company has indemnified its

It applies after a deductible.

Q: What are being paid?

A: for AHA D&O policy, the policy covers:
• Payment (damages, and costs and expenses awarded against an insured by a court, tribunal or
arbitrator; settlements made with insurer prior written agreement; civil or criminal fines
imposed on an Insured by a court or tribunal, but only where the law allows the insurer to
provide cover)
• Defence cost which are incurred with AHA prior written agreement (Defence cost covers the
defence, settlement or appeal of claim including preparation for and attending an inquiry).

Q: What are “entity covers?

A: D&O policies may extend the cover to “entity” covers such as a “Company Employment Practice
Error Claim”. Please note that Entity Coverage will reduce the limits available to protect the individual
officers and directors. The policy is primarily designed to protect the directors rather than the
company. The management, when effecting the policy, may request any such extension be capped
with a sublimit which is comfortable for the directors, and management.

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Q: What is a “claim” under a D&O policy?
A: Generally, a claim includes any written notice or civil proceeding or arbitration, criminal prosecution,
investigation, inquiry or regulatory action alleging a wrongful act by a director or officer in his or her
capacity as a director or officer, seeking monetary or nonmonetary damages.

Q: Who selects defence counsel?

A: for AHA policy, the insured shall select a panel counsel firm except for coverage issues.

Q: When should I notify insurer of the circumstances?

A: You have to notify the insurer of a fact or circumstances if you receive a threat (either written or
verbal) that someone is going to commence legal proceedings against you. This is a “claims made”
policy and it is important to file the notice during the policy period. For AHA D&O policy, you need to
file within a reasonable period but not later than 60 days after the expiry of the policy or discovery
period (extended reporting period). Filing of notice should include timely submission of all
information, correspondence, email relating to the claim.

Q: What is the difference between a policy on a “claims made basis” versus “occurrence basis”?
A: On a “claims made” policy, the claim must be made or reported during the policy period regardless
of when the claim actually happened. On an “occurrence” policy, the claim has to occur during the
policy period, regardless of when a claim is actually made or reported.

Q: What is the retroactive date?

A: The retroactive date is a date included in all claim made policies. It determines whether a claims
made will respond to a claim arising out of an act, error or omission that occurred prior to the
inception of the policy. If the act, error or omission took place after the retroactive date but prior to
the policy inception, a claim made policy may respond to claims arising out of this act, error or
omission if the insured first became aware of the potential claim during the period of insurance and
notified it to the insurer.

Q: What are the common exclusions?

A: for AHA D&O policy, these are some of the exclusions:
• Fraud, illegal profit (as established by final adjudication of a judicial or arbitral tribunal or any
admission by the insured)
• Prior known claims and circumstances
• Professional Services except for a failure to supervise
(“Professional Services” means the provision of services for a fee or other benefit or the
supply of goods or products)
• Claims for Management Error or Employment Practice Error which take place AFTER
“Important Change” (unless agreed by insurer). “Important Change” means:
(i) the Policyholder consolidates with or merges into or sells all or more
than seventy five percent (75%) of its total assets to someone else or
another entity or group of people and/or entities acting together; or
(ii) a person or entity, or group of people and/or entities acting together,
acquiring fifty percent (50%) or more of the power or right to vote in the
election of director(s) of the Policyholder; or
(iii) the insolvency, receivership, bankruptcy or liquidation of the Policyholder.

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Q: What should I bear in mind during the policy period?
A: For AHA D&O policy, two mains things are:
• to file claim, if any, during the policy period as it is a “claims made” policy
• to inform insurer of “Important Change” namely, change in 75% of the assets, change in 50%
of the voting power, and insolvency matters.

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