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Businesses, take cover(age): D&O policies in the Dodd-Frank era p2

Wed Nov 9th, 2011 on     Insurance Claims,    

We are continuing our discussion of the impact of the Dodd-Frank Act on business insurance. The law includes protections and incentives for whistleblowers that may very well result in internal and regulatory investigations. Even if there is no wrongdoing, the costs of these investigations will likely be steep. Companies, then, will want to review their insurance policies, particularly their directors and officers coverage.

Before Dodd-Frank, most D&O policies were just that: policies for individual officers and directors of the company. The coverage kicked in for just those people in the following circumstances:

  • Formal or informal requests for information
  • Civil charges
  • Criminal charges
  • Administrative complaints
  • Regulatory investigations commenced by target letter, Wells Notice or service of a subpoena

Federal authorities like the U.S. Attorney’s office send target letters when they believe they have “substantial evidence” of criminal activity. A Wells Notice is similar; the Securities and Exchange Commission sends a Wells Notice to notify an individual that it will be bringing an enforcement action.

Again, these are actions taken against the directors or officers of the company — the people who were led out of their plush office towers and down Wall Street.

In the pre-Dodd-Frank world, D&O insurance would only cover someone who was facing a perp walk. The company was on its own unless it was also a named insured. And, as with all insurance policies, there were coverage exclusions for companies (and directors and officers) in these policies.

If a whistleblower were to trigger an internal investigation by notifying the company’s own compliance officer or team, then, chances are good that there would be no coverage at all.

To be continued.

Source:, “Dodd-Frank & Corporate Investigations,” Paul A. Ferrillo, Oct. 20, 2011

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