ADDING VALUE IN THE CLAIMS PROCESS – D&O Janet Lambrou Romania – 26 June 2007

ADDING VALUE IN THE CLAIMS PROCESS – D&OJanet LambrouRomania – 26 June 2007

D&O CLAIMS Why are they so important? • Most often involve the most senior decision makers in the company – usually the executive board • Tend to be of very high value • Potential for damage to reputation for companies and their directors and officers. Coverage will be at risk without knowledgeable and proactive management of the D&O claim.

D&O CLAIMS Under UK law: Conditions precedent A condition precedent is a clause which imposes an obligation on the insured to do something as a strict pre-condition to the insurer’s liability. Breach of a condition precedent gives insurers the right to deny liability under the policy in respect of the entire claim. Conditions A condition is an ordinary term of the policy. If it is breached, an insurer cannot deny liability for a claim. It can claim damages for breach of the condition – to the extent that it has suffered prejudice as a result of that breach.

D&O CLAIMS Example of a BAD policy clause: No action shall lie against the underwriters unless, as a condition precedent thereto, the insured has fully complied with all the terms of this policy.

D&O CLAIMS Basic ‘steps’ of a claim • Initial notification • Agreement on handling defence Confirmation of indemnity? • Litigation or investigation process • Settlement • Potential recovery

D&O CLAIMS Claims made policies – • An obligation to notify CLAIMS • But is it an obligation or an option to notify CIRCUMSTANCES?

D&O CLAIMS Notification Circumstance v claim – defined? Examples: Claim means: Any written demand or written allegation brought by any person or organisation against the insured for any specified Wrongful Act. or any written demand from any person or organisation (other than the company) that it is the intention of the person or organisation to hold an insured responsible for the results of any specified Wrongful Act.

D&O CLAIMS 3 reasons why insurers like to be notified early: • to conduct their own investigation and appoint monitoring counsel • provide assistance in defence of the underlying claim • set reserves based on potential exposure for liability, defence costs, and their own costs. “Bad news rather than no news"

D&O CLAIMS Defence • (prior?) written consent to incur defence costs - a condition precedent?

D&O CLAIMS Reservation of rights • standard practice • general or specific • cannot reserve rights indefinitely, unless an issue which requires final adjudication (eg fraud)

D&O CLAIMS Defence and settlement • keeping insurers informed - “effectively associate” • prior written consent to settlement - a condition precedent?

D&O CLAIMS Allocation • pre-agreed percentage split • ‘best endeavours’ or ‘best efforts’

D&O CLAIMS Recovery Insurers will be subrogated to the rights of an insured to pursue recovery from a third party. The recovery action will be taken in the name of the insured. The insured must co-operate with the insurer in pursuing recovery. The insurer pays the costs of the recovery action. Recoveries made are paid in the following order – for costs incurred; to the insurer to the extent of indemnity paid under the policy; to the insured in respect of any retention paid.

D&O CLAIMS In the event of a complex or disputed claim Marsh can provide assistance to insureds through its legally qualified claims advocates, who have direct access to insurers.

D&O CLAIMS Some key points for insureds to remember when handling claims: • READ the policy and become familiar with the requirements in relation to claims • Understand what constitutes a claim and what constitutes a circumstance • Look out for conditions precedent! • Seek consent to defence costs BEFORE they are incurred • Keep the insurers informed as the claim progresses • Don’t settle without the insurers’ consent The insurer/insured relationship is like most others – its success relies on good communication. Marsh is ideally placed to assist insureds in maximising effective communication.

D&O CLAIMS QUESTIONS?

ADDING VALUE IN THE CLAIMS PROCESS – D&O Janet Lambrou Romania – 26 June 2007