Listed companies and their directors and officers run an increasing risk of becoming involved in a shareholders’ class action. Since class actions involve significant compensation amounts, it is of vital importance to all parties involved and society (seen the goals of a collective action and of liability law) that the directors/officers and the company being sued have adequate Directors & Officers (D&O) insurance. Nonetheless, conflicts of interest can arise between the company and the directors being sued in respect of the cover. In addition, conflicts of interest between the various D&O insurers could also arise. D&O insurance must be set up in such a way that these potential conflicts of interest are prevented as much as possible. The first conflict of interest can be restricted through the inclusion of either an allocation clause or an order of payment clause. In addition, a choice can be made to make a (greater) division between the Side A and Side C coverage within the D&O insurance policy or to take out a separate Side A policy altogether. The potential effects of the conflicting interests between the various D&O insurers involved can be mitigated by incorporating a properly defined follow form clause and an adequate leading underwriter clause. In that context, but also independently thereof a direct duty of good faith and fair dealing of the primary insurer(s) toward excess insurers should be adopted. Link to original and complete article.

By Wim Weterings