Fund Management


The fund industry’s claims experience evidences that, regardless of how well managed a fund complex may be, few fund managers should count themselves immune to the risk of litigation, regulatory investigations, or operational errors.  As a resource for the fund industry, ICI Mutual assists fund managers and fund directors in identifying, assessing and managing the specialized liability risks they face.  Towards this end, ICI Mutual regularly provides fund management with information on industry claims and claims trends, and publishes periodic risk management studiess that focus on risks and risk management techniques in specialized operational areas of particular interest to them.  As the fund industry’s leading provider of  directors & officers / errors & omissions (“D&O/E&O”) liability insurance, ICI Mutual offers a proven insurance product that hedges the financial impact on fund managers of financial losses associated with lawsuits, regulatory investigations and proceedings, and operational errors.

ICI Mutual’s standard D&O/E&O policy includes core coverages with a demonstrated, practical “real world” value for the protection of fund managers, funds, and their directors and officers – including coverage for prospectus liability lawsuits, defense costs in excess fee litigation, “costs of correction” for operational errors, and costs associated with both formal and informal regulatory investigations.  Where lawsuits or regulatory investigations do arise, ICI Mutual’s standard D&O/E&O policy is structured to afford broad discretion and flexibility to fund managers in retaining outside counsel and arranging their legal defenses.  In such cases, ICI Mutual’s experienced staff works closely with fund managers in addressing related insurance issues, in order to ensure that the insurance claims process  results in a fair and timely insurance resolution.


  • What makes ICI Mutual different from commercial insurers?

  • As an insurer owned and operated by the fund industry, ICI Mutual focuses exclusively on professional liability and fidelity bond insurance for mutual funds, mutual fund directors and officers, mutual fund advisers and other fund service providers.  ICI Mutual’s professional staff has substantial fund industry experience, and the Company's Board of Directors includes fund industry executives and fund independent directors from among the Company's member-insured fund groups. Each director brings demonstrated leadership and expertise to help guide development by the Company's professional staff of products and services that meet the specialized needs of funds, fund directors and officers, and fund advisers. The involvement and oversight of the Board ensure that ICI Mutual is operated to serve and benefit the Company's member-insureds.

    Over more than 30 years of operations, through good times and bad, ICI Mutual has followed a mandate of providing the fund industry with meaningful, consistent coverage at risk-related prices, and with fair and timely claims handling.  By adhering to this mission, ICI Mutual became – and remains – the predominant insurance provider to the fund industry, currently insuring fund groups managing over 60% of fund industry assets. This leadership position, in turn, has enabled ICI Mutual to act as a stabilizing influence on insurance premiums and coverages, and to protect funds and fund directors against the premium and coverage cycles to which commercial insurance markets have historically been subject.

  • What liability risks are faced by fund managers, and how do these differ from the risks faced by funds and fund independent directors?

  • Fund managers face certain liability risks that are the same or similar to those faced by funds and fund independent directors (e.g., “prospectus liability” class actions challenging fund disclosure, and investigations and enforcement proceedings initiated by federal regulators, state regulators, and self-regulatory organizations).  In addition, fund managers face certain liability risks that are separate and distinct from the risks faced by funds and fund independent directors.  Thus, for example, unlike funds and fund independent directors, fund managers may be named as defendants in section 36(b) litigation challenging fund fees.  Fund managers may also face legal exposures for their operations-based errors in providing advisory and related services to funds and private accounts (e.g., legal exposures arising from mishandling of corporate action requests, or failures to follow investment restrictions).

    As a practical matter, fund managers are likely to find themselves at heightened liability risk in fund industry claims, relative to funds and fund independent directors.  In part, this is because fund managers are more likely to be viewed as potential “deep pockets” in shareholder lawsuits initiated by plaintiffs’ lawyers specializing in securities litigation.

  • Should advisers and other service providers share insurance coverage with affiliated funds and their fund boards?

  • Approximately 70% of ICI Mutual’s clients purchase “joint” D&O/E&O insurance policies, under which funds and fund directors and officers share their D&O/E&O insurance coverage with one or more affiliated service providers.   Joint policies are frequently viewed as more cost-effective and administratively efficient than “funds only” D&O/E&O policies (under which only funds, and fund directors and officers, are insureds).  Among other things, joint policies permit funds and their affiliated service providers to share premium costs, and can reduce the number of deductibles that would otherwise be applicable to losses (including defense costs) incurred in individual claims.

    Of course, all D&O/E&O insurance policies include an aggregate limit on the amount payable by the insurer for any and all insurance claims made against any and all insureds during a given policy period. (Additional information on the “claims made” nature of D&O/E&O insurance policies and other insurance concepts is provided in this ICI Mutual study).  As a result, a joint insurance policy necessarily exposes each insured to “erosion” risk (i.e., the risk that claims against one insured will erode the aggregate limit that would otherwise be available to other insureds).  Some fund groups address this issue through internal agreements, which may guarantee each insured is guaranteed some minimum amount of coverage and/or pre-allocate coverage.  Other fund groups view this issue, among others, as a reason to structure their D&O/E&O insurance into separate “funds only” and “adviser only” programs.

  • Does ICI Mutual make premium allocation recommendations when affiliated service providers share D&O/E&O insurance programs with funds?

  • The determination of an appropriate allocation of premium as among insureds under a joint liability insurance policy is a judgment that may be influenced by a number of factors.  The ultimate responsibility for this judgment necessarily rests with the insureds themselves.  However, some insureds find the views of ICI Mutual to be helpful in their consideration of an appropriate allocation, and ICI Mutual is pleased, upon request, to provide its views as to the reasonableness of proposed allocations.

  • How much insurance protection should a fund manager purchase?

  • The question of “how much” D&O/E&O insurance to purchase is necessarily a business judgment that may be influenced by a number of factors; and, as for a fund manager’s own coverage, the ultimate responsibility for this judgment ultimately rests with the manager.  In reaching such judgments, fund managers may consider a number of factors, including (1) the amount of assets and types of funds under management, (2) the scope of coverage being afforded (e.g., is the D&O/E&O policy a “joint” policy, covering funds or affiliated service providers in addition to the manager and its directors and officers?), (3) their own risk tolerance, and (4) their fund group’s claims history.

    Fund managers—including managers that are not insured by ICI Mutual—frequently turn to ICI Mutual for peer reports, industry loss statistics, analysis of insurance terms, and in-person presentations on insurance program structures, to assist them as they make decisions on how much D&O/E&O insurance protection to purchase.

  • If our firm is not currently insured by ICI Mutual, how do we obtain a quote for insurance?

  • ICI Mutual accepts submissions from any member of the Investment Company Institute.  For additional information, a firm may contact Senior Vice President and Chief Underwriting Officer John Mulligan at