D&O policies are "unwieldy beasts"

Since the global financial crisis of 2008, Directors’ and Officers’ liability has become an increasingly important issue.

Put simply, as companies fold the number of D&O cases grows, with many directors finding themselves the subject of investigations and litigation.

Now with austerity measures coming into force around Europe, further ramping up the pressure on the private sector and leading to more business closures, D&O insurance may be more relevant than ever.

For risk managers, D&O policies need to be clear about what coverage they offer and in what circumstances says Edward Smerdon, a managing partner at Sedgwick Claims Management, who says that D&O coverage can be problematic.

“D&O policies are unwieldy beasts, with lots of clauses and too many definitions,” he said.

Smerdon added that the lack of clarity in D&O policies increases the likelihood of coverage disputes between policyholders and insurers, leaving directors stranded. For Smerdon, coverage issues stem from “drafting problems” in the policy itself.

Another key issue that affects D&O insurance is legal jurisdiction. Legal practices regarding indemnification vary hugely from country to country. Smerdon complained: “Half the countries in the world have no legal specification regarding indemnification.”

In the context of Europe, he used the example of Holland as a country where the parameters of indemnification are not clear.

For multi-national companies, the ambiguity of D&O coverage and varying legal specifications may increase the risk of investigations and litigation.

Smerdon made the comments at a Willis press briefing on the 19/05/11.

For more on D&O insurance, see the recent SR Guide.