Arizona Directors and Officers Insurance
We offer directors and officers insurance, commonly referred to as D&O insurance, to Arizona public, private, and non-profit organizations, including all types of financial institutions, trusts and partnerships.
We work with all major insurance companies and can offer D&O insurance to organizations in all industries.
Directors and officers insurance provides protection to an organization's officers, employees, and board of directors against allegations of wrongful acts committed in the course of performing their duties, such as an error, omission, misstatement, misleading statement, breach of duty or neglect.
D&O insurance also provides some protection to the organization itself.
These types of D&O claims are typically not covered by other types of insurance, such as general liability or professional liability.
Most D&O lawsuits in Arizona are filed by stockholders, employees, customers, regulators, or competitors.
Why should directors and officers in Arizona get D&O insurance?
D&O insurance is closely related to the issue of corporate governance, which is the set of processes, practices and rules by which an organization is directed and controlled.
Corporate governance involves balancing the interests of the various parties who have a stake in an organization.
The board of directors is a body of elected or appointed individuals who are tasked with setting the strategic direction of the Arizona organization, monitoring the organization's performance, and appointing the CEO and other officers, among others.
The board of directors does not run the day-to-day operations which is the duty of the organization's officers.
The organization's officers manage the organization and oversee all activities.
They are directly responsible for the success or failure of an organization.
The CEO reports directly to the board of directors.
There is often some overlap between the board and officers as some officers may also serve on the board of directors, such as the CEO serving as chairman of the board.
While many organizations provide for the indemnification of its directors and officers in the face of a lawsuit, there are instances where directors and officers might personally have to provide for their own defense and might have to pay damages out of their own assets.
Such instances may arise when an organization is prohibited from indemnifying a director or officer or when an organization becomes unable to indemnify them because it does not have sufficient financial resources or is in bankruptcy.
It is therefore important for Arizona directors and officers to be protected by D&O insurance with adequate limits and coverage.
What basic coverages does D&O insurance provide in Arizona?
The three basic coverages available under D&O insurance policies are Side A, Side B, and Side C.
The three coverages can be purchased in a single policy.
Side A can also be purchased by itself in a single policy which becomes excess to any underlying D&O policy.
Side A provides coverage to Arizona directors and officers for losses which they are personally liable to pay and which are not indemnified by the organization.
Side A coverage can also be purchased under a separate policy which becomes excess to the primary D&O policy.
Side A policies provide coverage in cases where the primary D&O insurance policy cannot provide full coverage to the directors and officers because the policy limits have been exhausted or for some other legal or regulatory reason.
Since Side A policies are designed to solely cover directors and officers, and not the organization, the policy cannot be used to pay creditors of the organization therefore leaving the policy limits intact.
Side A policies often include difference in conditions (DIC) coverage which tends to be broader and have fewer exclusions than the underlying policy.
Side B is the complement of Side A and provides coverage to the organization for losses which directors and officers become liable to pay but which are indemnified by the organization.
Side C provides coverage to the organization for claims filed against the organization.
For public companies, the coverage provided under Side C is usually limited to securities claims.
There is no standard D&O insurance policy in Arizona and the coverage, exclusions, conditions, and limitations vary by insurance company.
Applicants for coverage should therefore review the entire policy before committing to a specific insurance company.
How are derivative actions covered in a D&O insurance policy?
Derivative actions are lawsuits filed by shareholders against the directors and officers of the organization on behalf of the organization.
Derivative actions in Arizona usually involve public companies but can also be brought on behalf of private companies.
D&O insurance policies usually provide coverage for derivative actions under Side D.
The coverage is limited to investigative costs which include legal fees and other fees necessary to investigate and evaluate the derivative action.
What is presumptive indemnification?
Some D&O insurance policies have a presumptive indemnification clause which specifies that to the extent that an organization in Arizona is allowed to indemnify its directors and officers but does not do so, other than because of financial impairment, then the retention and terms applicable to Side B apply even if a payment is technically due by the insurance company under Side A.
The presumptive indemnification clause is designed to pre-empt organizations from trying to switch claims from Side B to Side A by refusing to indemnify its directors and officers, when more advantageous retentions and terms apply on Side A.
Which D&O insurance policy is responsible for a claim?
D&O insurance is written on a claims made policy form in Arizona.
This means that the policy that is in force at the time the claim is made against the insured handles the claim, not the policy that was in force when the act which gave rise to the claim occurred.
D&O insurance policies may however include time limitations such as the prior and pending proceeding date and the continuity date which determine how far back in time a policy's coverage applies.
A prior and pending proceeding date usually means that no coverage will be provided for any claim which is based upon or arising out of any prior or pending demand, suit, or other proceeding as of, or prior to, the prior or pending proceeding date.
A continuity date usually means that no coverage will be provided for any claim which is based on any fact, circumstance, situation, or event that is or reasonably would be regarded as the basis for a claim for which any executive officer had knowledge prior to the continuity date.
What is an extended reporting period?
To the extent that a D&O insurance policy is not renewed or is canceled by the Arizona insured, an extended reporting period can be purchased to provide "tail" coverage for a certain number of years.
The extended reporting period provides coverage for claims based on wrongful acts incurred during and prior to the expiring policy, but that are reported after the expiration or cancellation date of the policy.
Such claims are still subject to any prior and pending proceeding and/or continuity date.
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