Corporate directors’ Errors and Omissions policies are almost all “claims made” policies. This means that they protect against “claims made” during the policy period. If the policy were for calendar 2020, and something bad happened in 2020, so a director got sued in 2021 (or failed to notify the insurance company until 2021), there is no coverage, the director is on his own.
That’s why it’s critical to keep on renewing the policy. When the policy period ends, it is possible to negotiate a “tail” agreement, I think that’s the term, by which the insurance company will give future coverage for claims made after the policy period ended, over things that happened while the policy was in effect, even if claims are made later. There’s no sign that NRA sought such coverage, and if Lloyd’s is happy to escape covering them in the future, no reason to believe it would be willing to make such an agreement. Come August 31, they are off the hook.
Come August 31, every director is on the hook, personally, not only for decisions made after that date, but also for all decisions made before it. The insurance coverage simply vanishes as of that date.
A few questions the board should be asking, and now, not at the annual meeting, when the policy will already be a memory:
- Does the soon-expiring policy have tail coverage?
- As of its expiration on August 31, what is our personal liability for past errors or omissions?
- Does, or did, the policy cover intentional acts? (They never do)
- Do intentional acts include knowing of a problem, or strongly suspecting one, and consciously deciding not to investigate it? (Like, uh, your former treasurer just “took the Fifth” dozens of times when asked about his conduct. Or when you know that the CEO’s right hand woman has been convicted of embezzlement and was caught misappropriating NRA funds for her son’s wedding, and the CEO kept her in her post anyway?)
- That $5 million fund that you say will cover us, in’t any payment from it subject to the New York not-for-profit laws covering indemnification of directors?
- Don’t those laws say the nonprofit cannot indemnify a director for acts committed in bad faith, or dishonestly?
- Might a court not rule that failure to call for an investigation of known corruption was acting in bad faith, or dishonestly?
- Bluntly, are you blowing smoke up our collective posteriors, creating a sham to keep us quiet and in line, not caring that it may cost us our houses and life savings?