Directors And Officers Liability Insurance
Directors and officers liability insurance (D&O) covers the directors and officers of a company for negligent acts or omissions and for misleading statements that result in lawsuits against the company. There are various forms of D&O coverage. Side A coverage provides D&O coverage for personal liability when directors and officers who are accused of wrongdoing are not indemnified by the firm. Side B coverage reimburses a corporation for its loss when it indemnifies its directors and officers. Side C provides coverage for claims made specifically against the company. Corporate reimbursement coverage indemnifies directors and officers of the organization. D&O policies may be broadened to include coverage for employment practices liability (EPL). EPL coverage may also be purchased as a stand-alone policy.
Terrorism Insurance/TRIA
In addition to the risk of natural disasters, the insurance industry faces the threat of terrorist attacks. Losses stemming from the destruction of the World Trade Center and other buildings by terrorists on September 11, 2001 totaled about $32.5 billion, including commercial liability and group life insurance claims — not adjusted for inflation — or $35.9 billion in 2005 dollars. About two thirds of these losses were paid for by reinsurers, companies that provide insurance for insurers.
Prior to September 11, insurers provided terrorism coverage to their commercial insurance customers essentially free of charge because the chance of property damage from terrorist acts was considered remote. After September 11, insurers began to reassess the risk. For a while terrorism coverage was scarce. Reinsurers were unwilling to reinsure policies in urban areas perceived to be vulnerable to attack. Primary insurers filed requests with their state insurance departments for permission to exclude terrorism coverage from their commercial policies.
Concerned about the limited availability of terrorism coverage in high risk areas and its impact on the economy, Congress passed the Terrorism Risk Insurance Act (TRIA). The Act provides a temporary program that, in the event of major terrorist attack, allows the insurance industry and federal government to share losses according to a specific formula. TRIA was signed into law on November 26, 2002.and renewed again for two years in December 2005. Passage of TRIA enabled a market for terrorism insurance to begin to develop because the federal backstop effectively limits insurers’ losses, greatly simplifying the underwriting process. TRIA was extended for another seven years to 2014 in December 2007. The new law is known as the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) of 2007.
See Background on: Terrorism risk and insurance for further information.
Excess Casualty
Excess casualty insurance, also known as excess liability insurance, which provides protection from infrequent catastrophic accidents or occurrences, is similar to umbrella liability coverage, which also increases the liability protection provided by a company’s insurance policies. The main difference between excess and umbrella policies is that umbrella policies cover all underlying liability policies, whereas excess casualty policies increase the limits of liability on one particular policy. Both types of policies are designed to cover large, infrequent losses such as injuries caused by the collapse of a department store roof under the weight of a category 5 hurricane.
Each year the broker Marsh reviews the excess liability insurance-buying decisions of more than 4,000 organizations worldwide, including some 2,800 U.S. companies. The chart below indicates the percentage of U.S. firms experiencing a loss of $5 million or more. Those that experienced such a loss tended to purchase much higher limits of liability coverage.
