Directors and Officers (D&O) insurance by ARC, a CRC Group Company

D&O insurance provides coverage for individuals who serve as directors, officers, or
leaders of a company or organization.

About ARC, a CRC Group Company

ARC was established in 1986 to meet the growing needs of small to medium sized businesses seeking Management & Professional Liability Insurance solutions.

Since opening their doors, ARC have spread to eight offices throughout the country, becoming the 6th largest wholesale broker ranked by business insurance, and a top five producer with all major Management & Professional Liability Insurance carriers. ARC attributes their impressive growth to the level of service their all-star team provides its clients.

ARC Website

CRC Group is a leading wholesale and specialty insurance distributor who offer a broad range of products and expertise to help retail agents and brokers place complex or hard-to-insure risks. With deep market relationships and nationwide reach, CRC deliver customized solutions across a wide variety of industries.

“Clients come to us because of our willingness to listen, and our unique ability to understand and then address, even the most complex professional liability problems.”

Rob-Crocitto

President

Schedule a call with ARC

Directors and Officers (D&O) insurance

(D&O) insurance provides coverage for individuals who serve as directors, officers, or leaders of a company or organization. This type of insurance is designed to protect these individuals from personal losses in case they are sued for alleged wrongful acts or decisions made while managing the company. D&O insurance typically includes:

Personal Liability Protection:
D&O insurance protects the personal assets of directors and officers. If they are personally sued for alleged wrongful acts, such as mismanagement, breaches of fiduciary duty, or errors in decision-making, the insurance can cover their legal defense costs and, if necessary, settlements or judgments.
Corporate Reimbursement:
D&O insurance often includes a corporate reimbursement provision. This means that if the company indemnifies its directors and officers for legal expenses and settlements, the insurance can reimburse the company for these costs, helping to protect the company’s financial resources.
Coverage for Legal Defense Costs:
D&O insurance covers legal fees and expenses associated with defending against a lawsuit, including attorney’s fees, court costs, and other legal costs.
Settlements and Judgments:
If a lawsuit results in a settlement or judgment against a director or officer, the D&O insurance policy can provide coverage for the settlement amount or judgment, up to the policy limits.
Regulatory Investigations:
D&O insurance may also provide coverage for legal expenses related to investigations by regulatory authorities, such as the Securities and Exchange Commission (SEC).
Side A, B, and C Coverage:
D&O policies are typically structured with three sides of coverage:
- Side A: This provides coverage for individual directors and officers when the company cannot or will not indemnify them. There is no retention for a Side-A loss and the insurance coverage is provided on a first dollar basis.
- Side B: This covers reimbursement to the company when it indemnifies its directors and officers. This insuring agreement would be subject to the applicable retention.
- Side C: Also known as “entity coverage,” this protects the company itself from certain types of claims. This insuring agreement would be subject to the applicable retention.

ARC, Part of a Global Network

Global coverage through trusted partners

For global coverage ARC partners with Guest Krieger, a London based specialist independent Lloyd’s broker. Guest Krieger offer a wide range of insurance services to international and multinational clients

Alon Miller

Managing Director, Guest Krieger

Schedule a call with Guest Kreiger

Email directly: jack.lyles@guestkrieger.com

Frequently Asked Questions about D&O Insurance

WHAT IS D&O (MANAGEMENT LIABILITY) COVERAGE?

D&O is written to:

Protect the personal assets of a company’s directors and officers;
Protect the company’s assets;
Provide reimbursement to the organization to indemnify D&O’s for their losses; and
Help the company monitor and provide defense costs associated with responding to lawsuits and investigations.

WHY PRIVATE COMPANIES SHOULD CONSIDER BUYING D&O LIABILITY COVERAGE?

Cost of defending corporate lawsuits may exceed the net worth of most private companies;
Judgments can be financially crippling;
Corporate indemnification may not be available;
Adverse shareholders and other potential claimants may exist;
Bad business decisions are likely to be more visible due to small business environment thus attracting the
attention of shareholders, regulators and others;
Business decisions made by D&O’s can quickly impact the finances and operations of a company;
D&O’s work in demanding environments as they cover more corporate duties;
Unique conflicts of interest may exist due to complexity of responsibilities; and
Companies will have a difficult time attracting qualified individuals to their Boards without D&O coverage.

CURRENT BUSINESS TRENDS POINT TO PURCHASING D&O COVERAGE

Economic uncertainty;
Access to adequate capital;
Keeping up with technology;
Internet growth;
Protecting intellectual property assets; and
Retaining qualified workers.

WHAT ARE THE SOURCES OF D&O CLAIMS?

Shareholders, Investors, Partners and Members;
Customers, clients and consumer groups;
Other third party claims against Directors and Offcers (including competitors).

WHAT ARE THE DUTIES OF THE DIRECTORS & OFFICERS?

Duty of Care: Directors and officers are expected to perform their duties in good faith and at a level of professionalism they reasonably believe to be in the interest of the corporation and with the care that a reasonably prudent person in a similar situation would use under similar circumstances. The duty of care is a variable benchmark dependent upon the expertise, experience and background of each director and officer.

Duty of Loyalty: The duty of loyalty prohibits directors and officers from using their positions to further or enhance their private interests and requires them to refrain from engaging in personal activities which might injure the corporation. It requires an unselfish and undivided loyalty to the corporation and demands that there be no conflict between one’s self interest and that owed to the entity. Directors and officers may not realize secret profits or unfair personal gain, may not abuse corporate authority, may not compete with the corporation to it detriment, and may not transact business with the corporation unless the director or officer can demonstrate that the transaction was fair and reasonable to the corporation.

Duty of Obedience: The duty of loyalty prohibits directors and officers from using their positions to further or enhance their private interests and requires them to refrain from engaging in personal activities which might injure the corporation. It requires an unselfish and undivided loyalty to the corporation and demands that there be no conflict between one’s self interest and that owed to the entity. Directors and officers may not realize secret profits or unfair personal gain, may not abuse corporate authority, may not compete with the corporation to it detriment, and may not transact business with the corporation unless the director or officer can demonstrate that the transaction was fair and reasonable to the corporation.

Sample D&O Terms and Conditions & Example D&O Claims

SAMPLE D&O TERMS AND CONDITIONS

Allocation: This refers to the process that determines which portion of loss is covered between the corporate entity and the Directors and Officers. The allocation process determines how much of the defense of costs are advanced and in the end how much of the settlement or judgment is covered.

Claims-Made Policy: Coverage under the policy is triggered when the claim is made during the policy period.

Continuity Date: This is the date that a company last signed a warranty statement. It also ties back to a prior and pending litigation exclusion and a known wrongful acts exclusion in the BAM form.

Retroactive Date: Claims arising out of wrongful acts committed prior to this date are not covered under the policy. This is also referred to as the “Retro Date or prior acts exclusion”. Derivative Suit: An action brought by a shareholder on behalf of the corporation against the D&O’s of the
company for breach of their fiduciary duty.

Discovery: Also referred to as optional extension. The Assured may choose to elect Discovery for an additional premium usually for 12 months from the date the policy is cancelled. During this time, the company can report claims made against the D&O’s for wrongful acts committed prior to the effective date of cancellation.

Duty to Defend: The insurer appoints defense counsel and assumes the defense of a covered claim.

Entity Coverage: Extends coverage to the company (entity) for all covered claims.

Run-Off: When the insured experiences a change in control (such as the company is sold or a change in ownership voting stock exceeds a pre-determined percentage), the policy ceases providing ongoing acts coverage for the remainder of the policy period.

SAMPLE D&O CLAIMS

Federal Investigation: Federal agencies conducted a formal investigation into the activities of a defense contractor for the armed services. They investigated the company and its owner/president for alleged overbilling of the government for labor, improperly charging their lobbying costs into the contracts, and also for allowing foreign nationals to work on certain government contracts in violation of The International Traffic in Arms Regulations. The defense was successful in convincing the federal agencies to drop their investigation and not to commence a civil or criminal lawsuit against either party.

Defense costs approached $500,000.

Investor Fraud: A company that provides medical billing services to a certain client is paid a set percentage of the amount it bills. A Medicare audit of the client determines that over a $1 million worth of services was improperly billed to it. The client is forced to repay Medicare and the company is forced to repay the commissions. While this investigation is going on, the company conducts a round of financing but fails to mention that its cash flow could be greatly hindered should it be required to repay the commissions. An investor in that round of financing alleges breach of fiduciary duty and fraud when the company is incapable of paying interest on the security.

Settlement and defense exceeded $250,000.

Creditor (Non-Profit): A non-profit organization under severe financial constraints took out a bridge loan that was personally backed by a board member. The creditor alleges that the organization is in default on the debt and demands immediate payment.

Defense costs exceeded $30,000.

Breach of Contract (Non-Profit): A wealthy benefactor agreed to donate over two million dollars to a local non-profit organization. In exchange for the large donation, the organization agreed to put up an engraving recognizing the claimant in making this generous gift. The Insured later decided not to put up the engraving in the agreed upon area because of “aesthetic” concerns. A court ruled that the organization had to put up the engraving in the agreed upon location.

The defense costs exceeded $150,000.

Family Shareholders: After the death of a part owner of a company and his shares were bequeathed to his children, those children/shareholders noticed that their share of the profits was drastically reduced from what their father was receiving while he was still alive. The children alleged breach of fiduciary duty, conspiracy and fraud against the D&Os. Specifically, they alleged that once the D&Os were no longer under the watchful eye of their father, they allegedly began to drain the profits of the company through self-dealing, large personal purchases and other unscrupulous activities.

Defense and settlement exceeded $500,000.

Misrepresentation in Sale of Company (Run-Off Claim): A few months after purchasing an Insured and while the account was in Run-Off, the purchaser filed suit against the Company and its former D&Os for alleged fraud and conspiracy to commit fraud. The plaintiff alleged that prior to the sale, the defendants conspired to withhold crucial information regarding deficiencies in one of the Company’s products causing the plaintiff to greatly overpay for the Company.

Settlement and defense exceeded $2,000,000!

Investor: An investor in a startup night club alleges misrepresentation, breach of contract, breach of duciary duty and unjust enrichment stemming from the failure of the company to pay him the proper prots from the venture. The investor alleges that the directors and ofcers diverted the profits out of this venture and into their own.

Settlement and defense exceeded $500,000.

Non-Profit D&O (Improper Voting of Directors): Members of a country club alleged negligence and breach of fiduciary duty against the club and certain board members stemming from the improper voting and election of its board of directors. Plaintiffs alleged that due to the failure to follow proper voting protocol, certain board members were elected who then mismanaged the club through self-dealing and other improper acts.

Settlement (including new elections) and defense exceeded $100,000.

Sale of Assets & Bankruptcy: A competitor who successfully bid for the assets of a bankrupt company and the bankruptcy trustee both allege breach of fiduciary duty and fraudulent transfer by certain directors and ofcers in that they used company funds to purchase personal real estate, paid well above market rates for office space in a building owned by D&Os, and improperly transferred other assets out of the company including its intellectual property which they then used to start up a similar venture.

Settlement and defense approached $750,000.

Dilution: Five founders of the company who once owned 40% of it alleged that through the years a group of venture capital firms assumed management and engaged in a series of self-interested and dilutive stock offerings under terms that were grossly unfair to the common shareholders which resulted in them receiving less than $50K from a $80M merger.

Defense costs exceeded $250,000.

Joint Venture: Claimants allege that a D&O had been diverting funds for his personal use from $12 million borrowed in a joint venture with the Insured to rebuild a medical facility. Without enough money to finish the project, the bank foreclosed. The claimants alleged breach of the operating agreement, breach of fiduciary duty and negligence.

Settlement and defense approached $2,000,000!

Breach of Fiduciary Duty: A shareholder who invested over four million dollars in a land management company files a complaint against the company and its directors and officers alleging breach of fiduciary duty, conspiracy and fraud. In particular, it is alleged that the company (insured) failed to make quarterly distributions, wrongfully transferred funds out of certain properties and participated in sham transactions to
the detriment of all shareholders.

Settlement and defense exceeded $1,200,000!

Creditor Claim: Plaintiff filed a complaint against individual D&Os of a company alleging that its CEO, CFO, and COO conspired to use the plaintiff’s services to furnish, install and repair the company’s equipment knowing that it was insolvent and was planning to le for bankruptcy protection. Causes of action included: (1) fraud, misrepresentation and non-disclosure; (2) deceptive trade practices; and (3) civil conspiracy.

Total settlement and defense of the individually named defendants exceeded $100,000.

Class Action Complaint: Plaintiffs represents a class of non-insider stockholders who invested in the company. Plaintiffs allege that certain directors and officers failed to disclose material facts and provided them with inaccurate and misleading information. It is alleged that the materials did not disclose the high turnover of management and that the company’s website had not yet been developed. The company later went bankrupt. The complaint included causes of action for: (1) common law fraud; (2) negligent misrepresentation; and (3) breach of fiduciary duties.

Settled for over $1,000,000 and defense costs exceeding another $1,400,000!

Conspiracy & Negligence: A professional wrestler who competes in a wrestling circuit files a complaint against the organization — and its D&Os — which procures the talent for individual events across the country. Plaintiff alleges that he was excused by the organization from appearing at an event due to an illness in his family. The organization allegedly deemed that he was not properly excused pursuant to its rules and was suspended for a period of over one year. Plaintiff alleges that the suspension was done in an arbitrary manner and violated his contract. Plaintiff further alleges that his suspension was done in a conspiratorial manner in order to stifle competition. The plaintiff alleges the following causes of action: (1) breach of contract; (2) negligence; (3) fraud; (4) interference with prospective economic advantage/business relations; (5) conspiracy; (6) and intentional/ reckless infliction of emotional distress. Plaintiff is not an Employee as defined by the policy.

The matter is currently being defended and defense costs have exceeded $200,000.

Dispute Over Inventorship: An inventor filed a complaint against a research and development company specializing in medical devices alleging that the company was founded by his former partner for the purpose of stealing his highly valuable and uniquely innovative technology. This technology was the subject of a patent application which listed the plaintiff as the sole inventor. Plaintiff’s former partner, in charge of securing the patent, allegedly informed the plaintiff that he must also be listed as a co-inventor for the patent to be filed. When the plaintiff refused, his former partner withdrew the application. With the partnership subsequently liquidated and the application abandoned, the former partner immediately formed a new company and filed a new patent application virtually identical to the plaintiff’s but listed the former partner as the sole inventor. In his complaint plaintiff alleges that the company and its D&O (his former partner) misappropriated technology that he developed, and utilized it to establish the research and development company. Plaintiff asserts causes of action for: (1) fraud; (2) negligent misrepresentations; (3) breach of fiduciary duty; (4) conversion; and (5) successor liability.

Defense and settlement of this matter exceed $1,000,000!

Competitor Disputes: The plaintiff filed a complaint against their competitor alleging that a former employee, now working at the competition, engaged in unauthorized use of condential and proprietary information and committed other acts of unfair competition. As a result, the plaintiff alleges it has suffered irreparable and immediate injury. In addition, the plaintiff alleges that the defendant has possession of its condential information and intellectual property. The plaintiff asserts causes of action for: (1) misappropriation of trade secrets and confidential information; (2) violation of the Computer Fraud and Abuse Act (3) unlawful access to stored information; and (4) unfair competition. The plaintiff seeks: (1) attachment of a computer server; (2) attachment of certain files and documents; (3) injunction — preservation; (4) injunction — proprietary information; (5) injunction — surrender of possession; (6) injunction — noncompete; (7) compensatory damages; (8) exemplary and punitive
damages; and (9) attorneys’ fees and costs.

Total defense costs and settlement exceeded $350,000.

Misappropriation of Trade Secrets: A wholesale supplier and distributor of food products meets with a sales representative of a new product line they are considering. The sales representative communicated that in order to develop a long-term exclusive relationship within the designated territory, the wholesaler must provide her with information regarding its business operations, customers, and trade secrets. Later on, the sales representative opened her own wholesale distributorship within the same territory.

This claim is currently being defended and defense costs have exceeded $450,000.

Breach of Investment Agreement: A company enters into an investment agreement with a third party and agrees not to negotiate with other entity regarding financing or a potential acquisition for a two-week period. During the exclusivity period the company engages in negotiations with another investment group. The third party alleges breach of investment agreement and intentional and negligent misrepresentation.

Total defense costs and settlement exceeded $350,000.

Shareholder Derivative Action: A shareholder derivative action is taken against a company for breach of fiduciary duties on behalf of the directors. The plaintiffs contend that the defendants have failed to provide them with certain information, such as shareholder listings, financial data and other corporate records. They also allege that certain directors borrowed money from the company without the Board’s approval and
subsequently these loans were forgiven.

Total defense costs and settlement exceeded $500,000.

Breach of Fiduciary Duty: A private company agrees to perform market research for a start-up company in the material management industry. In exchange for their services, the company allegedly agrees to pay the private company $20,000 in cash and 5% of the privately placed issued shares in the company. The company denies that they explicitly or implicitly agreed to pay the private company in stock. The plaintiffs allege several causes of action, including breach of fiduciary duty.

Total defense costs and settlement exceeded $800,000.

Misrepresentation/Deceptive Trade Practices: A private software company represents that it can write software for a major corporation according to the corporation’s specifications; provide maintenance services for four years; and execute updates and upgrades to the software. The private company misses key delivery dates. The software fails key functionality tests and ultimately crashes and becomes inoperable. The corporation decides to withhold payments until certain milestones are met. The private software company allegedly indicates to the corporation that it needs the payments in order to remain solvent. The plaintiff alleges that the private software company represented that it could produce the software and that it was a financially stable company. The plaintiff alleges the following causes of action; misrepresentation and deceptive trade practices; and breach of covenant of good faith and fair dealing.

Total defense costs and settlement exceeded $1,000,000!

Loan Default: A diversified sports product company received a lawsuit against the President, CEO, and Chairman of the Board for not honoring a promissory note. The plaintiff alleges that it lent $1 million to the company. The company allegedly agreed to pay the funds back within a month pursuant to the promissory note. Despite requests for return of the money, plus interest, the company has not returned the funds to the plaintiff.

Total defense costs and settlement exceed $250,000.

Settlement and defense exceeded $1,200,000!

Shareholder Claim: A Midwest domiciled home products company retained an independent research firm to evaluate its new home product. Based on a favorable review by the outside firm, the company raised in excess of $10 million for the production and marketing of the new product. Prior to releasing the product, the company’s internal evaluation team discovered, after extensive testing, that the new product did not work properly. Shareholders have brought suit against the company and the directors and officers for misrepresentation in the offering documents. The plaintiffs assert causes of action for violation of various state securities laws and the Securities and Exchange Act of 1934.

Damages alleged in the lawsuit exceed $15,000,000!

Directors and Officers (D&O) insurance by ARC, a CRC Group Company

About ARC, a CRC Group Company

Directors and Officers (D&O) insurance

Personal Liability Protection:

Corporate Reimbursement:

Coverage for Legal Defense Costs:

Settlements and Judgments:

Regulatory Investigations:

Side A, B, and C Coverage:

ARC, Part of a Global Network

Frequently Asked Questions about D&O Insurance

Sample D&O Terms and Conditions & Example D&O Claims

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