One of us heard reports that the NRA leadership is saying it finally did get liability insurance for the directors. We wondered that anyone would issue a policy, with lawsuits by the NY Attorney General and by Ackerman McQueen already filed against two present and two past officers, both for millions, and that Lloyd’s of London had already turned them down.
I spoke to my attorney friend, and he said, I’d want to read carefully every word of that policy and investigate the company that issued it. Your leadership isn’t after real coverage, it just wants to calm down the directors, and for that anything entitled “Insurance” will do. Most directors are probably accustomed to car insurance, which is heavily regulated by the state, so that a policy from Allstate covers the same things as one from State Farm. Directors’ errors and omissions policies aren’t like that, it’s more like a free market where anything goes.
He added, if it’s a claims made policy, usually the occurrence and the claim’s filing must both happen while the policy is in effect. The new policy won’t cover anything that happened before this month. You can negotiate for retroactive coverage, but I bet they couldn’t get that. And I bet Lloyd’s wouldn’t give them a “tail” to cover claims made after its policy ended. If that’s the case, the directors are still uninsured for anything before August.
Then, he said, I’d look at what it covers and what it excludes. If you’re the insurance company, you want to exclude as much as you can. What’s the exclusion for “intentional acts,” and how are they defined?
I said, like a director voting for something they didn’t think in the corporation’s best interest, because they didn’t want to be passed over for renomination, or shouted down, or have powerful directors as their enemies? He said, exactly. Breach of fiduciary duty, and I’d be looking VERY carefully at whether the policy covers that. Does it exclude lawsuits by members of the organization against directors? Does it exclude fraud, it always does, but does that apply to directors who failed to probe the fraud, or are they without coverage? What does it say about violations of state law?
I’d want to see the policy application, too. It asks for things like do you know of any potential future claims against this policy? Were they honestly laid out? If not, the insurer has room to wiggle out of the policy after a claim is made. “The insured knew about a risk of lawsuits and didn’t tell us.” If the insurer is careful, they’ll make honest reporting a condition of their policy. Then, if it’s not done, you’ve not met a condition for their coverage.
Finally, he said, make sure it’s a solid insurer and not some fly-by-night that would insure somebody already tied up in lawsuits, so long as a big enough premium were dangled before them.