Chasing Headlines – why it might be bad for your D&O cover

Go Back 16.1.23 INSIGHTS

Every few years something comes along which is predicted to have astonishing implications for D&O cover. Quite often insurers propose a new policy extension to deal with this issue. Buyers of D&O insurance are reassured – they now have a clause of the policy with a heading that mirrors the issue about which the directors to whom they answer have been badgering them.  Everyone’s a winner! Or are they? 

Sometimes it is worth looking the gift horse in the mouth. Is the additional provision really new, or is it repackaging cover you already have, albeit in terms more obviously directed to the “new” issue? More importantly, is it actually restricting cover you already had by carving out part of that cover and imposing new limits, such as sub-limits of liability, or additional obligations in order to trigger coverage. Have you actually just been sold less than you already had on the basis of a promise that you were getting more? 

These are the potential downsides of focussing on the headline issue without considering its substance and whether that substance is already provided for. D&O cover is, ideally, drafted broadly then subject to clear exclusions. The broad drafting of how liabilities might arise (particularly in the definition of “Wrongful Act”) prevents cover being defeated by failing to satisfy every element of a over-specific stipulation of the trigger of loss. 

Breadth of cover is particularly important for the ever-widening number of companies caught in the nets of regulators. Cover has to be tailored to the reality of the regulatory environment: the need for prompt action if a regulator says “jump”. This was one reason why covers that, say, were only triggered once a director faced a subpoena were way behind the needs of directors of regulated entities. 

ESG seems to be the new headline-grabber. At first blush it is not obvious that, in general terms, this is imposing on directors the need to take account of matters beyond those which they have long-needed to heed courtesy of s 172(1) of the Companies Act 2006. Of course, the devil will be in the detail, but this is something which perhaps needs bearing in mind if, on renewal, you are approached with a bright and shiny “ESG Extension”. 

Stuart Hill is Managing Partner of Wynterhill LLP.

This post is intended to provide guidance of a practical nature but does not contain legal advice or advice as to what action you should or should not take specific to your insurance needs or those of your business, or with regard to any particular situation.