D&O/E&O Liability Insurance

Directors and officers coverage and errors and omissions coverage—types of liability insurance that, for mutual fund insureds, are frequently combined into a single “D&O/E&O” policy—protect individuals and entities against the financial impact of judgments, settlements, and legal defense costs incurred in certain shareholder lawsuits or other claims made against them relating to their professional services and/or positions as directors and officers. The ICI Mutual D&O/E&O policy (Policy) is designed specifically for the needs of the mutual fund industry.

D&O Coverage. The Policy’s D&O coverage insures the legal liability of the individual directors and officers of the insured company for certain errors and omissions committed by them. Where the insured company is not legally permitted to indemnify its directors or officers for a covered loss, the Policy’s D&O coverage provides for insurance payments to be made directly to the directors or officers. Otherwise, where the insured company indemnifies its directors or officers for their loss, the Policy’s D&O coverage reimburses the insured company for those indemnification payments. In this way, the coverage insures against a fund’s own “indemnification risk.”

E&O Coverage. The Policy’s E&O coverage insures the legal liability of an insured company for certain errors and omissions committed by the company itself, or by persons for whose errors and omissions the company is legally responsible, such as employees acting within the scope of their employment.

Costs of Correction Coverage. “Costs of correction” coverage, pioneered by ICI Mutual, provides for reimbursement to an insured company for its costs of correcting situations that, if not corrected, would result in actual legal liability on the part of the insured company. Significantly, a lawsuit or other “claim” is not necessary to trigger the potential availability of this coverage. Indeed, a basic purpose of this coverage is to permit prompt correction by insured companies of operations-based errors in order to avoid later, more expensive problems or litigation.

Express Coverage for Informal Investigations. Coverage under ICI Mutual’s Policy extends not only to formal investigations by governmental bodies and self-regulatory organizations, but to informal investigations as well. Such coverage is an important protection, as insureds may often incur substantial defense costs during the informal stage of a regulatory investigation, a stage that may last months or even years. Indeed, entire regulatory investigations may be conducted and concluded without ever becoming formal.

Control of Defense and Advancement of Defense Costs. The Policy is structured to permit insureds broad discretion and flexibility in arranging their defenses of lawsuits and regulatory investigations. Moreover, unless ICI Mutual has reasonable grounds to believe that the lawsuit or investigation is not covered, the Policy specifically provides for the advancement of defense costs, upon request (and subject to a written undertaking), prior to the final disposition of the underlying matter.

For more information, please contact us at underwritingdept@icimutual.com.