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PROTECTING YOUR DIRECTORS AND
OFFICERS FROM LIABILITY
CEO Leadership Network
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interactivity
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CEO Leadership Network
Joseph O’Neil
Partner
Peabody and Arnold
CEO Leadership Network
Damian Brew
Managing Director and National Claims
Advocacy Practice Leader Marsh Inc
ZURICH D&O WEBINAR
December 7, 2011
by E. Joseph O’Neil, Peabody & Arnold LLP
and R. Damian Brew, Marsh USA
Peabody & Arnold LLP w Marsh USA
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Presenters
E. Joseph O’Neil
• Partner, Peabody & Arnold LLP
R. Damian Brew
• Managing Director, Marsh USA - Financial and
Professional Liability Practice (FINPRO)
Peabody & Arnold LLP w Marsh USA
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Employment Practices Claims
Have you been involved in a
discrimination, harassment or wrongful
termination clam?
Peabody & Arnold LLP w Marsh USA
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Employment Practices Claims
Over the last 20 years employment
practices claims have become pervasive
• Gender, race and disability discrimination
• Sexual harassment
• Wrongful termination and whistleblower
suits
Peabody & Arnold LLP w Marsh USA
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Employment Practices Claims
At risk parties include:
• The company itself
• Directors and officers
• Managerial employees and co-workers
Potential claimants include:
• Disgruntled employees, former employees or
applicants of employment
• Customers or clients
• Regulatory agencies (EEOC and state equivalent)
Peabody & Arnold LLP w Marsh USA
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Ways To Mitigate Exposure
EPL Insurance
• Either stand alone or as part of D&O
Have a reliable and responsive “go to” law firm
for EPL issues as they come up.
Pay attention to warning signs:
• Abnormally high turnover in a particular area
• Multiple complaints about an individual
Consider paying severance for releases (even if
it hurts).
Maintain accurate employee evaluations.
Peabody & Arnold LLP w Marsh USA
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Bankruptcy
Have you worked for a company when it
went bankrupt?
Peabody & Arnold LLP w Marsh USA
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Exposure of D&Os in Bankruptcy
Breach of fiduciary duty owed to creditors
when company is insolvent.
Mismanagement claim by trustee,
unsecured creditors or litigation trust.
Fraud claims by lenders or vendors.
Peabody & Arnold LLP w Marsh USA
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Mitigating Bankruptcy Exposure for D&Os
Have insurance that applies when company
cannot indemnify.
Avoid making big claims as a creditor.
Make sure distress company stays current on
tax obligations.
If you stay with a company during and after
bankruptcy, make sure the Plan releases you
for pre-petition conduct.
Peabody & Arnold LLP w Marsh USA
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Mergers and Acquisitions
Have you worked for a company while it
merged into, or acquired, another
company?
Peabody & Arnold LLP w Marsh USA
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Merger and Acquisition Claims Activity
Allege that company’s board of directors
sold or plan to sell the company at terms
unfavorable to shareholders
Transactions Affected:
• Management Buyouts
• Going Private Transactions
• Mergers with Other Companies
Peabody & Arnold LLP w Marsh USA
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Mergers and Acquisition Claims
Allegations
• Breach of fiduciary duty to shareholders
– Loyalty, care or good faith
• Auction Process was flawed or Conflict of Interest
• Federal Suits May Raise Proxy Issues
Characteristics
• Filed in State Court-Multiple Jurisdictions
• Settle Quickly with Defense Costs Low (Historical)
• Plaintiffs seek injunctive relief-measure to improve
returns to shareholders
Peabody & Arnold LLP w Marsh USA
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D&O Risk Avoidance
Best Practices
• Advisors: Counsel, Bankers, Accountants
• Diligence
D&O Insurance: Key Terms
•
•
•
•
Securities Claim
Adequate Limits
Dedicated D&O only coverage
Claims Process
Peabody & Arnold LLP w Marsh USA
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Securities Suits
Traditional Source of Largest D&O
Exposure
Arises under Federal Securities Laws
• ’33 Act: Prospectus Liability
• ’34 Act (10(b)5 Liability) Aftermarket
Disclosures
Peabody & Arnold LLP w Marsh USA
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Securities Claim Trends
NERA’s Recent Trends in Securities Class
Action Litigation: 2011 Mid-Year Review
• Click here to view the report
Peabody & Arnold LLP w Marsh USA
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Issues For D&Os
Selection of Defense Counsel
Importance of D&O Insurance
Role of Counsel, Insurers and Broker
Pre-Claim Steps to Mitigate Risk
• Selection of Insurer
• Policy Form
• Insurers’ Claims Handling Philosophies
Peabody & Arnold LLP w Marsh USA
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Key D&O Policy Terms
Fraud/Personal Profit Exclusions
Definition of Claim
Representations and Severability
Notice-claims made
Consent to Settlement, Counsel
Covered Defense Costs
Peabody & Arnold LLP w Marsh USA
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For more information:
E. Joseph O’Neil
617-951-4705
eoneil@peabodyarnold.com
Peabody & Arnold LLP w Marsh USA
R. Damian Brew
212-345-2584
richard.d.brew@marsh.com
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