The Hartford’s New D&O Product Protects Independent Directors

Until recently, independent directors serving on corporate boards could comfortably rely on a company’s indemnification and directors & officers (D&O) insurance to protect them from legal action in connection with their board duties.

But as D&O vulnerabilities have grown, standard D&O insurance has proven to be an incomplete solution, leaving directors with inadequate protection from personal liability from regulator or shareholder lawsuits.

In this setting, independent directors wanting to serve on a board face more challenges than ever. Recent studies also show a dwindling supply of willing, qualified directors.

In short, times have changed, prompting The Hartford to respond with a new product.

The Hartford Financial Services Group, Inc. has acted to steady director ranks with a new D&O product, “Priority Protection – IDL,” focused solely on independent directors liability protection.

“It’s a product whose time has come,” says Michael Price, vice president of Hartford Financial Products, a unit of The Hartford. “With individual director settlements hitting the multi-million-dollar range, companies are finding it tougher to appoint and retain the high-caliber directors they need on their boards. These talented people are different from an officer in the company who might serve on his or her own board, so unless they have assurance of personal coverage, board membership is becoming risky for them.”

Priority Protection – IDL, when purchased in conjunction with The Hartford’s Priority Protection ‘Side A’ policy and the policy’s difference-in- conditions endorsement, addresses an independent director’s personal risk and can make it easier for organizations to recruit top-notch outside directors, according to Price.

The coverage is triggered when the organization is prevented by law from indemnifying its directors, when it fails or refuses to indemnify the directors even if permitted to do so, or when it files for bankruptcy and is financially unable to indemnify its directors.

The policy also protects directors at other times when the traditional D&O or the “Side A” coverage is not available, including situations such as the following:

* The D&O policy’s standard exclusions, such as the Insured v. Insured exclusion, preclude coverage;
* The D&O policy is frozen during bankruptcy proceedings;
* The entire D&O policy is rescinded or all coverage is denied due to the wrongful conduct of management or other board members; or
* The limits of the traditional D&O policy are exhausted by advances of
defense costs to individuals known to have committed fraud.

Priority Protection – IDL, which completes a D&O protection program, is available nationwide through Hartford Financial Products.