Protecting Your Directors and Officers from Liability
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Transcript of Protecting Your Directors and Officers from Liability
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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 [email protected] [email protected]
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