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not impose a self-insured retention with respect to non-indemnified loss incurred bythe directors and officers under “Side-A.”A D&O policy will have a fixed policy limit. If the term of the policy is one year, thelimit of liability will typically be an aggregate limit of liability applicable to all claimsmade during the term of the policy. If the term of the policy is two years or more,there may be separate limits of liability for each policy year.3. Definition of “loss”The definition of “loss” generally includes amounts that the directors and officersare legally obligated to pay as the result of a claim, including damages, judgments,settlements and costs, charges and expenses (excluding salaries of officers oremployees of the institution), incurred in the defense of the claim and appeals.Fines and penalties are generally excluded, as are matters uninsurable under thelaw pursuant to which the policy is construed. Punitive and exemplary damagesmay or may not be covered, depending on the policy and the state in which thepolicy is construed.“Virtually all D&O policiesexclude claims against theinsureds based upon orattributable to their gainingin fact any personal profit oradvantage to which they werenot legally entitled.”4. Definition of “wrongful act”The term “wrongful act” is usually defined as any actual or alleged error,misstatement, misleading statement, act or omission or neglect or breach of dutyby the directors and officers or any matter claimed against them by reason of theirbeing directors or officers of the institution or its subsidiaries. If coverage is availablefor the institution’s liability to third parties for its own alleged misconduct, thedefinition of “wrongful act” will also include those actual or alleged acts, errors oromissions by the institution for which the policy provides coverage.Unless otherwise provided in the policy, coverage is only available for directors andofficers in their capacity as directors and officers of the institution to which the policywas issued. Coverage is not available for wrongdoing committed by the directors andofficers in their personal capacities or as directors or officers of any other company.5. ExclusionsAll D&O policies contain specific exclusions that further define the scope of coverageafforded by the policy. Some exclusions are included to prevent an overlap ofcoverage with other forms of insurance available. Others are included becausethe exposure is not considered to be insurable. There are a number of what areconsidered “standard” exclusions in D&O policies. For example, virtually all D&Opolicies exclude claims against the insureds based upon or attributable to theirgaining in fact any personal profit or advantage to which they were not legallyentitled. This would limit coverage in connection with cases where the directors orofficers are held liable for self-dealing or breaches of the duty of loyalty. Most D&Opolicies also exclude claims brought about or contributed to by the dishonesty orfraud of the insureds. D&O policies usually exclude claims brought by one insuredor the institution against another insured, except in certain limited circumstances. Inaddition, D&O policies usually exclude claims made against the directors and officersfor bodily injury or property damage, or violations of ERISA.27Financial institutions guide
ConclusionCorporate indemnification and D&O insurance cannot protect directors against all ofthe liabilities to which they are subject – in particular, those attributable to conflictsof interest, self-dealing, fraud or dishonesty. This is hardly a surprising conclusion.Only the directors’ own good faith and diligence can offer complete protectionNevertheless, depository institutions and their management are well served by agood risk management program that includes: (1) loss control mechanisms designedto help the directors and officers understand and act in accordance with theirduties, (2) charter provisions to take advantage of limitation of liability statutes, ifapplicable; (3) bylaw provisions and, if appropriate, separate contractual agreementsproviding for indemnification and advancement to the fullest extent permitted underapplicable law; and (4) a well-considered program of D&O insurance. Such a riskmanagement program will help depository institutions attract and retain the qualitymanagement they need to compete effectively in today’s competitive and rapidlychanging environment.28Financial institutions guide
Page 6 and 7: • Reviewing how appropriate finan
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Page 11 and 12: agents, or servants of the [bank] t
Page 13 and 14: Sarbanes-OxleyThe Sarbanes-Oxley Ac
Page 15 and 16: duty; (2) that such violation, prac
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Know the risks - Zurich

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