What and Why? ~ Insurance Academy

As a director or company officer, the opportunity to serve as a director outside a corporate entity can benefit you, your company, and the other organizations involved. But when serving in that capacity, are you covered by your company’s Directors and Officers Liability insurance policy?

Along with the courage of senior leaders to take the opportunity to be executives outside the entity, the opportunity also raises significant responsibility issues. As a result, it’s important to understand how D&O insurance protects executives who work on the boards of other companies. As directors and officers face increased regulatory oversight, and in an effort to address outside directors’ risk, ensure that your organization understands Outside Directorship Liability (ODL) coverage.

[Sumber: The WizIQ Blog]

Outside Directorship Liability is a guarantee given to company officials assigned by the company to hold an entity outside the company (usually a subsidiary / group of companies) at the request of the company.

The highlights of the ODL guarantee
Companies typically indemnify directors and officers for their actions in their capacity, including as directors or executives of outside entities they serve at the company’s request. This means that the company that requests your services as a director will typically pay for the costs and liabilities you may incur as a director or officer as a result of a position outside this entity. Compensation is often included in the by-laws, articles of association, employment agreement, or the company’s indemnity act. Before agreeing to sit off the board, you should understand the extent of your own company’s indemnification.

Your company’s D&O insurance program will also typically cover these board activities for directors and officers as specified in the policy; However, ODL coverage generally does not cover all employees. D&O policies often contain ODL extensions which most commonly operate on a “double excess basis,” in which the company’s ODL coverage applies excess indemnification of an outside entity to directors or officers and the outside entity’s D&O program itself. In some cases, the ODL extension works on a “triple excess basis.” In this case it means that your company’s ODL coverage will apply the excess of the outside entity’s indemnity to the director or officer, the excess of the outside entity’s D&O program, and the excess of your own company’s indemnity to the director or officer.

ODL Coverage Features
ODL extensions generally have three limitations:

• To be guaranteed, your roles with outside entities must match your company’s specific direction or request. Therefore, your company’s D&O policy does not cover you when, for example, you serve on the board of a local golf club or homeowners association because this is not a role the company requires. Such positions are usually self-chosen roles; You should confirm directly with these organizations that they will provide compensation and that they also have adequate D&O protection.
• Blanket coverage is usually provided for non-profit entities; this means that these entities do not need to be specifically included in the policy. If there is a need to extend coverage to that non-profit entity (private or public company or even a minority-owned entity that is not considered a subsidiary), the insurer may request additional information and special approvals that may be required. It is important to note that insurance companies may be reluctant to extend coverage to outside public companies. If they agree, it may be on a triple excess basis and may be subject to a sublimit. Because of this, it is important to understand the remedies available and the direct coverage managed by an outside entity, especially if it is a public company.
• ODL scope does not cover the entity itself; it only covers you as an individual director or officer of the company. In the case of a minority owned entity, it will not include individuals who represent other owners.

Best practice

Because ODL coverage usually shares a limit with the entire D&O program, it is critical that your company fully understand its ODL exposure. This can be difficult because the nature of a D&O policy extends not only coverage to the parent company, but also to subsidiaries that can appoint directors and officers to sit off the board. And because most D&O policies are global, ODL’s coverage and exposure extends worldwide. Make sure your company has a tracking methodology to help measure and assess the indemnity liability and potential impact on the D&O program. Such a system should include how the company:

• Facilitate and document decisions to approve or disapprove compensation for certain outside positions and how this is communicated to individuals in the parent company and subsidiaries.
• Track the start and end dates of those outside positions.
• Require individuals to report claims against them in relation to their outside positions to the company at specified times

Sticking to the basics of ODL guarantees can help ensure you’re covered in the event of a D&O issue. Understanding your company’s and subsidiary’s overall exposure can help ensure that your company’s D&O program limits are not accidentally exposed to unanticipated claims for cover in its program.

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