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PROTECTING YOUR DIRECTORS AND OFFICERS FROM LIABILITY

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Joseph O’NeilPartner Peabody and Arnold

Damian BrewManaging Director and National Claims Advocacy Practice Leader Marsh Inc

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ZURICH D&O WEBINARDecember 7, 2011

by E. Joseph O’Neil, Peabody & Arnold LLPand R. Damian Brew, 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)

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Employment Practices Claims

Have you been involved in a discrimination, harassment or wrongful termination clam?

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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

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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)

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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.

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Bankruptcy

Have you worked for a company when it went bankrupt?

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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.

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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.

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Mergers and Acquisitions

Have you worked for a company while it merged into, or acquired, another company?

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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

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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

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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

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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

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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

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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

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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

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For more information:

E. Joseph O’Neil R. Damian Brew617-951-4705 212-345-2584eoneil@peabodyarnold.com richard.d.brew@marsh.com

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