Most D&O policies include presumptive indemnification. Indemnification by a corporation is meant to protect its directors and officers from personal liability in third-party lawsuits. Ideally, the corporation retains a certain level of responsibility for its officers, and then the insurance company pays whatever costs go beyond this retention. The retention required, however, could be so large that it basically nullifies the D&O policy in most circumstances where it would be needed.
Pay Close Attention to WordingTo understand exactly when the D&O policy kicks in, both the corporation and its officers should be aware of the wording associated with presumptive indemnification in the policy. Talk to your insurance agent or attorney to make sure you understand its nuances and ask the right questions:
Does it call for defense against all claims or just reasonable claims?
What is the retention cap?
What role does the officers’ knowledge or intention play?
Take Necessary Responsibility Understanding the policy helps the company and its directors and officers know what additional coverage they need. The corporation needs to know how much it could be liable for paying, and the officers need to know how much personal liability coverage they need.
It is important for all parties involved to understand what a corporation’s D&O policy actually covers. Understanding the presumptive indemnification clause is a key part of that knowledge.