What To Do When Your D&O Insurance Company Denies Coverage Or Threatens To Rescind The Policy

Corporate Counsel

PUBLISHED ON: September 25, 2003

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The current insurance market dominated by headlines regarding accounting fraud, various stock market meltdowns and September 11th only amplifies the need for Directors and Officers liability insurance coverage. The D&O liability insurance marketplace is now regularly front-page news. These reports include accounts of tripling of premium, quintupling of deductibles and narrowing of coverage.

Recently, insurance companies repeatedly have threatened to avoid the D&O policies they sold by rescinding them. The arguments used to attempt to rescind bought-and paid- for insurance policies sound similar to post-loss underwriting.

As measured by premium volume, the top-three companies together account for almost two-thirds of the market. According to the most recent (2002) report by Tillinghast–Towers Perrin, AIG had a 35% share, Lloyd’s a 14% share and Chubb a 13% share. All the remaining sellers have a 5% or lower share. So much for choice.

Due to the size and complex nature of many D&O claims, assertion of a D&O claim frequently leads to coverage disputes. Insurance companies are familiar with the types of issues that arise when a D&O claim is submitted, but policyholders generally are not. Some problems can be avoided with planning and proper advocacy.