Ramot Insurance Agency specialises in directors and officers liability insurance (“D&O”) and arranges individually tailored policies for its clients according to the type of business activity. Ramot arranges cover with leading insurers in Israel and abroad. Our clients include numerous companies traded on the NASDAQ, the TASE, as well as private companies, non-profit making organisations, kibbutzim and cooperative associations.
Directors and officers liability insurance is now a core component of a corporate insurance portfolio. The cover has become increasingly relevant in the financial sector due to an ongoing trend of discontented investors and shareholders filing claims against companies and their directors and officers when share prices drop sharply. These claims entail protracted litigation and D&O insurers play a major and effective role in dealing with them. The amount of claims against directors and officers is constantly on the rise, and corporate organisations are hence are increasingly exposed to these types of claims.
The extent of exposure to such claims depends on several factors such as the type of business activity, the size of the company and its asset base, whether it is a public or private company, the number of shareholders and its financial condition. On average, directors and officers in public companies are sued 2-3 times more than in private companies and major companies with significant assets are sued more than smaller companies. The type of business which the company is involved in also has a significant impact on its exposure to claims, with banks and financial institutions being at the top of the list followed by hi-tech companies, especially following share price volatility.
The market for D&O insurance has developed considerably over the last decade. Originally, the cover focused primarily on “personal financial protection”, although covers have now been extended to protect the company (“Entity Cover”) and cover a wide range of liabilities.
The most popular policy wording offered by insurance companies and the one which provides the broadest and most adequate cover is the CorporateGuard for Directors and Officers policy, offered by most leading insurers in Israel and worldwide. The main aspects of the cover afforded to the insured under the policy are detailed below.
Salient points of the D&O policy
1.       Directors and officers liability – The primary insuring clause under the policy, covering the directors and officers in the company against claims made against them in their personal capacity. The insurance covers financial loss as well as defence costs arising from a “wrongful act”, as defined in the policy, arising from a breach of duty, error or omission, breach of authority and the like of the respective director or officer. The cover also applies to cases in which the director or officer cannot be indemnified by the company for various reasons such as legal restrictions, cases where the company decides not to indemnify the director or officer, or is unable to do so due to its financial condition, insolvency etc.
2.       Corporate reimbursement – The second insuring clause affords reimbursement to the company in cases in which it is required to indemnify its directors and officers for claims made against them. It should however be pointed out that the policy does not cover claims which are made against the company itself for corporate liability.
3.       Entity cover for securities claims endorsement – Covering corporate liability in connection with securities claims, usually subject to at least one director or officer being sued at the same time. This cover is usually endorsed to the policy by specific request.
4.       Employment practice claims coverage – Protects the directors and officers against claims made by company employees relating to matters such as unlawful dismissal, failure to promote, sexual harassment etc.
5.       Defence costs – The policy pays various legal costs which are incurred by the insureds in defending themselves against various claims.
The policy also contains various optional extensions with the flexibility of tailoring the cover to the structure and activity of the company.
The main extensions included in the policy are as follows:
1.       Representation at investigations and examinations – Payment of expenses in any official investigation, examination, enquiry or other similar proceeding which is not defined as a claim or which might give rise to a claim against a director or officer.
2.       New subsidiaries – The cover is extended to include new subsidiaries which the insured acquires or establishes. This extension is subject to various conditions including that the asset size of the new company does not exceed a predefined amount, is not traded on a stock exchange and is not domiciled in the USA or Canada.
3.       Outside directorships – The policy covers directors who are appointed by the company to serve as directors or officers in outside entities other than subsidiaries, as defined in the policy. The cover applies in excess of any stand-alone policy which the outside entity has arranged to cover all of its directors and officers. In certain cases, this outside entity needs to be specified in the policy schedule.
4.       Discovery period – Due to the fact that the policy is on a “claims-made” basis, the cover effectively expires as soon as the period of insurance ends. Hence, if the insured does not wish to renew the insurance, or if the insurer does not wish to renew the policy, it is possible to purchase cover for claims which are made during a discovery period for previous events which occurred during the period in which the policy was valid.
It should be emphasised that the aforementioned is merely a brief summary of the salient points of a D&O policy. The cover is subject to the terms, conditions and exclusions of the policy wording.
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