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Most directors and officers (D&O) policies provide three types of coverage. Side A of a D&O liability policy responds to claims brought against directors and officers when a company cannot or will not indemnify them. Side B provides claim reimbursement to the company for money it pays directors and officers as indemnification. And while side C responds to balance-sheet protection for the company itself, coverage is typically limited to securities claims. Like side B, side C is typically subject to a self-insured retention or deductible. So, what exactly is considered a security claim?
The International Risk Management Institute (IRMI) defines security claims as “claims brought by a publicly held corporation’s shareholders alleging that actions by the firm’s directors and officers caused a loss in market value of the firm’s shares.” Simply put, securities claims are class action and derivative lawsuits brought against a company by its shareholders. The IRMI notes that to date, there have been 16 securities class action claims that have been settled in amounts exceeding $100 million. These class action and derivative lawsuits typically involve allegations related to:
- Breaches of disclosure.
- Breaches of fiduciary duties.
- Deceptive conduct that has resulted in a loss of the company’s market value.
- Violations of any federal, state, local or foreign regulation, rule or statute regulating securities that are brought by any person or entity alleging, arising out of, based upon or attributable to the purchase or sale or offer or solicitation of an offer to purchase or sell any securities of an organization.
Over the past several years, there have been court disputes over what actually constitutes a securities claim in the context of a public company’s D&O policy. It’s why it is so important to work with an insurance broker who is an expert in D&O liability insurance and who can help you select a policy that best fits your company’s needs.
Aren’t sure what’s covered under your D&O liability insurance policy? Then it’s time to give Oakwood D&O a call. We have more than 15 years of experience specializing in all aspects of management liability, with a razor-sharp focus on D&O insurance.
Get in touch! Email Eli Solomon, CEO, at eli@oakwooddno.com or call 323-686-7519. You can also follow Oakwood D&O on LinkedIn.
