Independent Directors Safety Net Liability Insurance

ICI Mutual's Independent Directors Safety Net Liability Insurance (IDL Policy) is specifically designed to meet the unique concerns and needs of fund independent directors.

Stand-Alone Coverage for Independent Directors. Under a "joint" policy (i.e., a policy shared by one or more funds and fund directors and officers with the fund adviser, other service providers, and their directors and officers), independent directors run the risk that the policy's limits may be eroded by claims made against other insureds, potentially leaving independent directors with insufficient coverage. In contrast, the IDL Policy's limits are available exclusively to independent directors.

Coverage for Both Indemnifiable and Non-Indemnifiable Losses. Under many policies of this type, coverage is available to directors only for their non-indemnifiable losses—that is, for losses that their company is not legally permitted to indemnify. In the fund industry, however, indemnification is rarely unavailable to independent directors. By extending coverage to include both indemnifiable and non-indemnifiable losses, the ICI Mutual IDL Policy greatly enhances the insurance protection afforded to independent directors, and serves to protect their funds against the funds' own "indemnification risk."

Special "Drop Down" Provisions. The IDL Policy is typically placed in excess of underlying D&O/E&O coverage that insures funds, fund directors and officers, and service providers. However, whereas a typical excess policy affords coverage only in the event that the underlying coverage has been depleted through payment of claims, the IDL Policy also "drops down" to provide primary coverage for independent directors if the underlying coverage is:

  • canceled by any insured other than the independent directors,
  • terminated by reason of acquisition or merger,
  • rescinded,
  • uncollectible as a result of the underlying insurer's final determination that the loss is not covered, or
  • uncollectible as a result of the underlying insurer's insolvency.

No Threat of Cancellation or Rescission. With adequate prior notice, standard D&O/E&O policies can be canceled for any reason. Under standard D&O/E&O policies, there is also the possibility that coverage could be rescinded in the event the applicant makes a material misstatement in its insurance application. ICI Mutual's IDL Policy cannot be rescinded or canceled for any reason other than non-payment of premium.

Coverage for Regulatory Investigations. Like ICI Mutual's standard D&O/E&O policy, the IDL Policy's coverage extends not only to lawsuits against independent directors, but also to both formal and informal regulatory investigations brought by the SEC, other governmental bodies, and/or self-regulatory organizations.

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