Primary and excess D&O coverage terms may differ in event of bankruptcy or restructuring

As companies in the financial sector opt for excess D&O coverage, this could lead to increased wrangling between insurers as to who will have to indemnify in the event of a claim, reports Standard & Poor’s.
At its conference ‘Navigating the Turbulence’ on June 1 in Brooklyn, New York, S&P’s held a panel discussion on developments in the D&O and E&O market.
Susanne Murray, executive vice president of executive risk at Alliant Insurance Services, was a member of the panel. She said many companies are purchasing excess D&O coverage, and that traditionally the terms of the excess coverage have been closely aligned with the primary coverage, reports S&P’s.
“But the wave of business failures and restructuring within the financial sector have changed that,” S&P’s continued. “Companies in bankruptcy, for instance, might see their coverage discontinued because their legal identity as a company with debtor-in-possession financing may not be the same as the original entity.”
Differences between primary and excess D&O policies may also exist in the case of shareholder class action suits, S&P’s continued.
“As a result, for companies with multiple layers of coverage, who pays what when claims are adjudicated can become complicated and involve legal wrangling among the insurers.”
James Blinn, principal at insurance industry consultants Advisen Ltd., also sat on the panel. He noted that shareholder class action suits currently affect 77% of the companies that Advisen tracked (Advisen’s sample includes companies with more than US$250 million in assets), compared to 35% in the past year, S&P’s reported.