Hospitality Industry Insurance: Directors’ And Officers’ Liability (D&O) Insurance Must Have “Dedicated Limits” Coverage To Cover Legal Defense Costs

“…the industry invented what’s known as dedicated limits–sometimes called difference-in-conditions–coverage. This coverage sits on top of and is excess to both the indemnity contracts and the company’s general D&O policy and is specifically intended to cover the situation where the company cannot or simply will not advance the director and officer his defense costs for matters with criminal law implications or otherwise…”

(From a RiskAndInsurance.com article)   Typically, directors and officers have an employment agreement, corporate by-law or separate contract that requires the company to “advance” (i.e., loan) them their legal defense costs should they become involved in a suit or investigation that could have criminal law implications for them. This is a director’s and officer’s first line of protection.

The programs then also typically insure directors and officers under D&O insurance policies. “Side A” of such policies insures them directly. “Side B” reimburses the company if it advances them money for defense costs under the company’s by-law or contract. And “Side C” covers the company’s fees if it is a defendant in a securities case.

Because all the coverages fall under a single limit, whatever is paid to the company under one side reduces the total coverage available. Plus, if there’s a big self-insured retention–a deductible–the directors and officers may have to pay it out of their pockets.

It’s for that reason (among others) that the industry invented what’s known as dedicated limits–sometimes called difference-in-conditions–coverage. This coverage sits on top of and is excess to both the indemnity contracts and the company’s general D&O policy and is specifically intended to cover the situation where the company cannot or simply will not advance the director and officer his defense costs for matters with criminal law implications or otherwise.

Most companies, however, do not have this coverage. Perhaps this complicated structure may have caused directors and officers in the past not to investigate their protection in great detail.

 For more:   http://www.riskandinsurance.com/story.jsp?storyId=395653638