Having observed and commented on the D&O insurance industry for many years, I am accustomed to periodic proclamations from non-industry-based observers about how the D&O insurance industry ought to work, based on various social, behavioral, or economic notions. These periodic declarations usually start with a series of vexed observations that the D&O industry does or does not do things that economic or behavioral models suggest the industry should or should not do, and then the declarations move on to a series of proposed prescriptions that would mandate how the D&O insurance business ought to work, for the supposed greater good of all.
The latest example of this literary genre is the academic paper “Changing the Guard: Improving Corporate Governance with D&O Insurer Rotations” written by UCLA Law Professor Andrew Verstein. Based on his construct of the way D&O insurance business works and his belief that D&O insurance business ought to work differently, Professor Verstein proposes that corporations ought to be forced to rotate D&O insurers every five years. I discuss my concerns with Professor Verstein’s proposal below. Professor Verstein’s paper can be found here. His August 19, 2020 summary of the paper on the CLS Blue Sky Blog can be found here.
Continue Reading Mandating D&O Insurer Rotation? A Critique
Among the looming economic consequences of the pandemic is the likelihood of a huge surge in bankruptcy filings. A rise in bankruptcies will in turn likely lead to an increase in the number of bankruptcy-related litigation claims against directors and officers of the bankrupt companies, which in turn could lead to insurance coverage issues under the companies’ D&O insurance policies. In the following guest post, Alicia Garcia and Kate Hausmann, Complex Claim Specialists with Hiscox USA, and James Talbert and Elan Kandel of the Bailey Cavalieri law firm take a look at the issues that could arise in the bankruptcy context with respect to the policies’ Insured vs. Insured Exclusion. I would like to thank the authors for allowing me to publish their article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here is the authors’ article.
In an interesting decision that touches on a number of basic D&O insurance coverage issues, a federal district court judge applying Oklahoma law has ruled that a company’s management liability insurance policy does not provide coverage for legal expenses a former company executive incurred in a declaratory judgment action that had been filed by another company executive to determine the parties’ rights under a profit sharing agreement. The court concluded that there was no coverage because the individual seeking coverage had not been named as a defendant in the lawsuit by reason of his status as an insured person. Even more interestingly, the court concluded further that, even though the individual had been named as a defendant in the declaratory judgment lawsuit, he had not incurred “Defense Expenses” in the lawsuit, and therefore suffered no “Loss.” Western District of Oklahoma Judge 
Many traditional liability insurance policies contain provisions specifying that in the event of a claim the insurer has the duty to defend the insured. However, many management liability insurance policies do not impose a duty on the insurer to defend the insured; rather, these policies usually provide that insureds will defend themselves, with the obligation on the insurer to advance defense costs as they are incurred, subject to all of the policy’s terms and conditions. However, because defense obligations under the more traditional duty to defend arrangement are well established and more familiar to many courts, courts sometimes attempt to resolve issues arising under duty to advance policies by referring to principles established with regard to duty to defend policies.
As I noted in yesterday’s post, there could be a significant number of bankruptcies in coming months, and D&O claims in the bankruptcy context could give rise to insurance coverage disputes. In addition to the possible coverage issues I noted in yesterday’s post (pertaining bankruptcy exclusions, in particular), another issue that could arise is whether or not coverage for claims brought on behalf of the bankrupt debtor’s estate or on behalf of unsecured creditors is precluded by the insured vs. insured exclusion found in most policies.
As a result of the economic fallout from the coronavirus outbreak, a number of businesses will struggle to survive. Some may wind up in bankruptcy. Indeed, a May 28, 2020 Harvard Business Review article (
Readers know that I have been following the 