Million-dollar court cases, expert predictions and in-depth market analysis — Insurance Journal’s top-read directors and officers insurance stories in 2023 scrutinized notable national headlines through a D&O lens. Meanwhile, big-picture evaluations continued to draw attention, as did a legal dispute over a “bump-up” exclusion.
1. D&O Repercussions of the Silicon Valley Bank Collapse
Shortly after Silicon Valley collapsed in March, eyes turned toward an AM Best commentary issued as a warning to the insurance industry. Had the federal government not stepped in to make SVB depositors whole, D&O insurance providers for startups and venture capitalists, as well as financial institutions supporting these entities, would have been staring at potentially significant claims. The bank’s downfall “highlights the critical importance of enterprise risk management, asset/liability management, and liquidity profiles” during a period of rising interest rates, AM Best said.
Later, in May, a bankruptcy judge allowed officials with SVB’s parent company to tap into the $210 million in insurance coverage available through directors and officers liability policies to defend themselves against litigation that followed the bank’s collapse. The Committee of Unsecured Creditors for the SVB Financial Group bankruptcy had objected to the expense, but Martin Glenn, chief bankruptcy judge for the Southern District of New York, said the insurance policies themselves state that the bank’s directors and officers get first dibs on any proceeds from the D&O policies.
2. Short-Lived Excess D&O Lawsuit Made Headlines During FTX Fallout
Readers closely monitored a brief excess D&O development following the collapse of global cryptocurrency exchange FTX. In October, FTX founder Sam Bankman-Fried filed a suit in federal court against his excess insurance company, seeking payment of legal costs. He dropped that lawsuit in November, days after he was found guilty of one of the biggest financial frauds on record. Kevin M. LaCroix, executive vice president at RT ProExec, a division of RT Specialty, said in a D&O Diary blog post that the coverage dispute raised some interesting questions related to the distribution of D&O coverage to multiple insureds.
3. Towers Watson “Bump-Up” Exclusion Ruling Reversed
A judicial panel of the Fourth Circuit Court of Appeals ruled in May that insurance broker Towers Watson may not be entitled to $80 million in insurance to cover settlements of shareholder lawsuits related to the merger between Towers Watson and Willis in 2015.
In its ruling, the appeals court in Richmond reversed a coverage victory won by Towers Watson in federal district court in Alexandria in 2021. Towers Watson was later denied a rehearing by a federal appeals court.
The coverage dispute centered on a “bump-up” exclusion in the D&O liability policies issued to Towers Watson in 2015. A bump-up exclusion generally bars coverage for losses stemming from judgments or settlements in connection with claims against the insured seeking an increase, or “bump up,” in the consideration paid in an acquisition. Towers Watson shareholders filed several lawsuits in Virginia and Delaware against Towers Watson’s chairman and CEO and others, alleging that they received below-market consideration for their shares in the merger.
4. D&O Big Picture Discussions Took Center Stage in Spring
Many heavily read D&O stories between March and May highlighted concerns from experts regarding the D&O landscape. AM Best said it remains to be seen how long the rate and price increase reprieve can last, while Dan Beatty and Erin Zimmerman said the current D&O market is out of balance, with insurers facing a soft underwriting landscape just as the volume and severity of claims are rising.
And, while analysts at Fitch Ratings estimated that combined ratios for the D&O liability line remained below breakeven in 2022, Fitch determined that with competition fueling price declines and the economic conditions uncertain, “the line is under pressure.”
5. CEO: W.R. Berkley Isn’t Going to Chase D&O Market ‘Down the Drain’
During a call with analysts to discuss first-quarter earnings, W.R. Berkley Corp. President and CEO Robert Berkley said the D&O marketplace, especially for large accounts, has been “in a state of free fall as far as rate adequacy or pricing.”
He said the insurer was not going to follow the directors and officers market “down the drain.”
Berkely said there had been a lot of new entrants into the D&O market because “there’s not a lot of barriers to entry to getting into that space.” However, the additional supply was not being met by demand.
“We have seen a dramatic reduction in IPOs,” Berkley said. “We’ve just seen a dramatic reduction in a lot of the activity that would drive D&O purchasing.” This, according to Berkley, includes transactional liability. M&A activity “has fallen off a cliff,” he said.
“The reality is that the demand has been reduced and the supply has increased, and that has led to an unattractive, competitive environment from our perspective,” Berkley said.
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