The following is a case study based on real Kapnick clients about the impact of of insufficient D&O coverage for an individual board member and Kapnick’s collaborative, One Firm solution.
One of Kapnick’s private clients was invited to join the board of a for-profit company but was concerned that the company’s general D&O coverage did not have high enough limits. As the first line of defense (in a case involving a board member) is the company, then their D&O policy, and finally the individual director or officer. As the client did not want to risk his own hard-earned assets, he needed to explore his options. Unfortunately, the company did not have the resources to dramatically increase their limits on their D&O policy. A personal umbrella policy was also explored, but did not have the proper coverage terms.
The average reported D&O loss is $399,394, and D&O claims are up due to:
- Securities Action Lawsuits
| 217 cases in 2018 (20-year high)
| Settlements up 71% from 2017 to 2018
| Attorney fees increase 63% from 2012 to 2016
- Social Issues, including #metoo, leadership cover-ups, hostile corporate culture and gender pay gaps
- Cyber Security Risks
In one specific circumstance, the independent directors of a publicly traded athletic shoe and sportwear company ended up paying $40 million out of pocket after three executives admitted to fraud and drained the company’s D&O policies before the independent directors had a chance to use the policies to settle litigation.
Kapnick Risk Services and private client experts worked together to place an independent D&O policy, designed to cover losses in excess of the company’s policy. This took into account both the company’s budgetary constraints and mitigated our client’s risk, protecting his hard-earned assets.