One area of potential legal exposure facing corporate executives – including even executives of private companies – is the risk of liability under laws designed to protect competition, including (but definitely not limited to) state and federal antitrust laws. Claims asserting liability under these various legal provisions not only represent a significant liability exposure for corporate executives, but they also present a number of potentially significant issues when it comes to questions of coverage under the typical private company D&O insurance policy. As discussed below, a recent paper discussed a number of these issues; I discuss additional issues below, as well.
In their paper entitled “Optimizing Antitrust Coverage in Private Company D&O Policies” (here), Lorie Masters and Amanda Wait of the Hunton Andrews Kurth law firm and Sarah Downey of Marsh discuss the complex issues that private companies’ antitrust exposures can present. Among other things, the authors note that regulators increasingly are targeting individual defendants in antitrust enforcement actions. Among other challenges these actions present is the high cost of defense, which in turn raises questions of insurance coverage. As the authors note, “private company policies should be carefully reviewed before purchase to ensure that they do not limit coverage applicable to antitrust matters.” The authors’ paper is interesting and worth reading at length and in full.
There are a number of reasons why private company D&O insurance purchasers should be concerned about the ways that their policies address antitrust issues in particular and competition issues generally. The first and most important reason policyholders need to be concerned about these issues is that many private company D&O insurers’ base policy forms contain broad antitrust exclusions, precluding coverage for any loss (including attorneys’ fees) incurred in connection with antitrust claims.
There is a more important issue about the antitrust exclusion and one that does not get talked about nearly often enough. That is that though we refer to the exclusion by the shorthand name as an “antitrust exclusion,” in most instances the exclusion’s preclusive effect sweeps much more broadly than just with respect to claims asserted under the various antitrust laws. The wording of different exclusions varies, but many of these so-called antitrust exclusions also preclude coverage under other types of competition laws, including, for example, laws relating to restraint of trade, unfair competition, and unfair trade practices.
The problem for policyholders whose policies contain an antitrust exclusion that sweeps so broadly as to preclude coverage for these many other kinds of claims is that these kinds of general competition law violations are a frequent – indeed, a nearly ubiquitous – part of most private company D&O claims.
For example, a claim by a competitor that a company has wrongfully hired the competitor’s former employee — a very common kind of private company D&O claim — will almost always contain an allegation of one or more claims of anticompetitive conduct, including, for example, claims of unfair competition or restraint of trade.
In addition, these “antitrust” exclusions often are written with a very broad preamble, sweepingly precluding coverage for any claims based upon, arising out of, or in any way relating to alleged anticompetitive conduct. The broad preclusive reach of these kinds of exclusions potentially could sweep so broadly that it could preclude coverage for many kinds of claims that appropriately ought to be covered under a private company D&O insurance policy, and that indeed represent the very kind of claims for which many buyers purchase private company D&O insurance policies in the first place.
Many carriers will remove these exclusions upon request – but of course the exclusion will not be removed if the request to remove the exclusion is not made. Other carriers will not remove the exclusion, or will not remove it for certain specific companies or kinds of companies, but may at least agree to provide sub-limited coverage for antitrust claims up to a specified amount. In some instances, these sub-limits may also be subject to coinsurance requirements or to increase retentions for antitrust claims.
There are certain carriers that will refuse to remove or modify the antitrust exclusion. In a crowded and competitive private company D&O insurance marketplace, most D&O insurance buyers will have alternatives to placing their coverage with a carrier that refuses to remove or modify the exclusions. In light of the potentially broad sweep of the antitrust exclusion, private company D&O insurance buyers and their advisors should have a strong bias in favor of policies that do not have the exclusion or from which the exclusion has been removed.
In my opinion, an insurer’s refusal to remove or modify the antitrust exclusion is a sufficient reason for most buyers that have alternatives to move coverage away from the carrier that refuses to budge on this issue. The availability for the removal of this type of critical policy exclusion upon request underscores the importance for insurance buyers of having an experienced and informed insurance advisor involved in their insurance purchases, to ensure that all opportunities for coverage improvement are fully explored.
For a recent post in which I discuss a specific case in which the broad sweep of an “antitrust” exclusion operated to preclude coverage for a number of different kinds of claims, refer here.