Guest Post – Executive Liability Rising for Privately Held Firms

Today we welcome our guest, Jeffrey S. Gelburd, CPCU, ARM, Vice President of Murray Risk Management and Insurance to talk about The ESOP Association’s Executive Liability Insurance Program. Jeff developed The ESOP Association’s endorsed Executive Liability Insurance Program in 1989. If you would like additional information about the program, please visit The ESOP Association’s website.

Since 1989, The ESOP Association has endorsed The Executive Liability Insurance Program allowing its members to purchase Directors & Officers (D&O), Fiduciary and Employment Practices Liability (EPL) and Crime insurance on a group discount basis. Interestingly enough, members have been purchasing this coverage primarily to obtain the Fiduciary Liability insurance covering their exposures as set forth under ERISA. However, as this article points out liability exposure to the Board to the Directors of these ESOP companies are increasing as claims are being filed from new sources such as ESOP trustees (both outside and inside)  customers, competitors, minority shareholders, Merger & Acquisition  activity, lenders, government agencies, foreign entities and fellow D&O’s.

Claims from competitors for example, have risen as competing firms accuse executives and board members of slander, defamation of character and disparaging comments of their products or services. Litigation from customers that triggers the D&O insurance stems from allegations of price fixing or unfair trade practices.

In a recent survey of directors and officers of privately held companies conducted recently by Business Insurance, state over 50% named lawsuits filed by customers and competitors being their biggest concern. This was followed by regulatory litigation and employment practices.  Indeed, Employment Practices litigation has skyrocketed as a result of the downturn in the economy and layoffs experienced since 2008.

Regulatory litigation is perhaps the most troublesome liability exposure as there has been a rise in claims from federal investigations and enforcement actions, reforms in health care as well as banking and consumer protection that are likely to generate new liabilities.  Laws that affect Executive Liability insurance include Americans with Disabilities Act, the Foreign Corrupt Practices Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act and antitrust laws to name a few.

Litigation over the theft or infringement of intellectual property, trademarks and patents is also a concern. This type of litigation often occurs when one employee leaves a firm for a competitor. The employee has proprietary insight, trade secrets, customer lists or other inside information about the prior organization that is passed onto the new firm.

A Transitioning  Insurance Marketplace

Over the last several months the insurance marketplace for Executive Liability insurance has been transitioning from a “soft” to a “firm” marketplace.

Although for most privately held and ESOP companies, Executive Liability insurance is likely to remain affordable and broad in terms of covered risks, premium reductions on renewal policies will seldom be seen for most purchasers in 2012. While firming of premium rate is occurring for other lines of commercial insurance, this trend affecting the Executive Liability insurance is the result of the increase in claims filed against these policies as described above. It should be no surprise that increases in deductibles may also be proposed in an effort to further remove the insurer from the rise in claim activity.

Don’t Just Buy on Price

Too often we see decisions being made on which insurance proposal to accept made solely on price and not coverage terms or how proposed endorsements can impact the breadth of coverage.

Although price is an important aspect of the decision, a true coverage comparison listing out all the endorsements of the proposed policies and how these exclusions match up is often a useful tool when making a decision on what option to select. A coverage comparison should be performed by the insurance agent or broker. Or alternatively, samples of these coverage comparisons can be obtain by contacting Murray Risk Management and Insurance. Contact information is found below.

This article is authored by Jeffrey S. Gelburd, CPCU, ARM, Vice President of Murray Risk Management and Insurance. Jeff developed The ESOP Association endorsed Executive Liability Insurance Program in 1989. He can be reached by calling 1-800-533-5271, extension 381 or by email jgelburdATmurrayins.com.

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