Directors and Officers Insurance Update
Zimmerman, Philip, The CPA Journal
A recent program sponsored by the Association of the Bar of the City of New York (ABCNY) focused on "Directors & Officers (D&O) Insurance in the Age of Enron."
Effect of Enron on the liability insurance market Evan Shapiro of Peterson & Ross said that various reports estimate Enron's collapse will cost insurance companies between $2 billion and $3.5 billion. Many of these losses involved primary and excess insurers that also insure CPAs and attorneys against professional liability risks. As a result, CPAs can expect their own insurance costs to rise. In addition, insurance companies may increase their deductibles and establish new requirements for retention and limitations on coverage.
Know your insurance policy. According to Paul C. Rowe, claims counsel of Kempner Financial Insurance Solutions, insureds need to know the terms of their policies because,"I will allow what the policy covers and nothing beyond that."Also important to know is whether a policy is a term policy, which allows certain claims made for acts during the term of the policy (as most D&O policies are written), or a claims made policy, which allows certain claims made during the term of the policy (as most CPA professional liability policies are).
When insureds assess their coverage needs, they should determine whether defense costs are included in the coverage or separately covered by their policy. If defense costs are separately covered, the coverage is not diminished by damage awards or settlements. Most insurers of CPAs charge all defense costs against the face of the policy.
Andre E. Harlfinger, vice president of Marsh FINPRO, advised that, when obtaining adequate coverage at a reasonable price is difficult and the prospective insurer wants to know more about the insured's risk management, "the broker will play a more significant role than ever in facilitating this exchange of information between Insured and Insurer and helping to forge a relationship of trust and confidence! …