Outside Counsel


Outside counsel are often tasked with assisting fund boards and other stakeholders in evaluating liability risks, structuring insurance programs, and defending against claims.  As a resource for the fund industry, ICI Mutual makes available to outside counsel information on fund industry claims and claims trends, along with periodic risk management reports that focus on the industry’s specialized risks.  ICI Mutual also frequently consults with the industry’s outside counsel in order to ensure that the coverages appropriately address relevant legal concerns.

Outside counsel for individual fund groups often work directly with the ICI Mutual staff during their clients’ annual insurance renewals, in order to review and assess policy terms and conditions, or to resolve client questions that may arise in their clients’ evaluation of insurance structures and options.  It is also common for the ICI Mutual staff to work with outside counsel for individual fund groups outside the annual renewal process, as, for example, where events (such as fund mergers or acquisitions) raise specialized insurance issues that require prompt resolution.  Of course, ICI Mutual also works closely with outside counsel for insureds who become involved in lawsuits, regulatory investigations, or other claims.  


  • How do mutual fund D&O/E&O policies differ with regard to the coverage they provide for funds, fund directors and fund advisers?

  • Mutual fund D&O/E&O insurers, like corporate D&O/E&O insurers generally, do not use a single common, standard form of insurance contract.  Moreover, during the course of the insurance application process, the standard form of an insurer’s insurance contract may be modified through the addition of separate policy “endorsements.”   As a result, mutual fund D&O/E&O policies may differ with respect to the scope of coverages afforded, as well as in the terms and conditions to which these coverages are subject.  Accordingly, comparing features of  D&O/E&O insurance policies offered by different insurers typically requires an examination of the particular policy forms and endorsements at issue.  (A detailed discussion of some of the more significant features of mutual D&O/E&O insurance policies, and how these features may differ among insurers, is provided in this ICI Mutual study.)

    As a general matter, ICI Mutual’s D&O/E&O insurance policy and standard endorsements include a number of features that are either unavailable from many commercial insurers, or that may otherwise be more advantageous from the perspective of insureds.  These features include (1) ICI Mutual’s expansive definition of “Claim” (which encompasses both formal and informal regulatory investigations); (2) “first dollar” coverage for costs incurred by registered funds and other insureds in conducting shareholder derivative demand investigations; (3) expansive “non-party witness” coverage for fund independent directors; (4) full “costs of correction” coverage, without sublimits or increased deductibles; (5) specialized enhancements to address potential concerns of fund independent directors with respect to advancement and indemnification for their defense costs; (6) coverage designed to defray expenses incurred by insureds in "claim-related" internal corporate investigations; and (7) endorsements specifically addressing coverage available for "Shareholder Data Breach Events" and "Network Security Events."

  • What questions should fund boards consider in evaluating and selecting D&O/E&O insurance?

  • When evaluating D&O/E&O insurance, fund boards (and other stakeholders) may wish to consider a number of questions as they seek to achieve an appropriate balance between scope, dollar amount and cost of coverage, and as they assess the various options that may be available in the insurance marketplace.  Among the broad questions to be considered are these:  What type of D&O/E&O insurance structure is appropriate for the fund group?  Which D&O/E&O policy is appropriate for the fund group?  Should the fund group obtain extra protection for fund independent directors?

    Each of these questions, in turn, may involve component questions, such as: Should the fund group structure its insurance as a “joint” policy or as separate “funds only” and “adviser only” policies?  Should the fund group utilize a “single-insurer” approach or a “layered” approach?  How do D&O/E&O policies under consideration differ with regard to the basic coverages they provide?  How important to the fund group are other factors (e.g., price, reputation of insurer, insurer’s long-term commitment to the mutual fund marketplace, etc.)?   Outside counsel seeking more information on these and related questions may access this ICI Mutual study.

  • What kinds of specialized insurance protections are available for fund independent directors?

  • Independent directors commonly enjoy robust protections for personal financial exposure (including for legal defense costs) in fund industry claims, in the form of fund indemnification and D&O/E&O insurance.  Even so, many fund groups have considered mechanisms designed to supplement these protections for fund independent directors.  Among the mechanisms that are sometimes considered are reserved limits (in which a layer of the overall limit of a D&O/E&O insurance policy is reserved for the exclusive use of fund independent directors) or internal agreements among insureds (under which fund independent directors are guaranteed some minimum amount of coverage and/or coverage is preallocated among insureds in the event losses exceed the policy limit).  Outside counsel seeking more information on these mechanisms may access this ICI Mutual study.

    Particularly in recent years, one of the more popular supplemental liability protections for fund independent directors has been independent director liability (IDL) insurance.  IDL insurance is a stand-alone liability insurance coverage that affords protection solely to fund independent directors, and mitigates their exposure to various risks associated with indemnification and D&O/E&O insurance, including (1) indemnification risk (i.e., the risk that a fund will be financially unable or legally prohibited from paying indemnification to its independent directors), and (2) erosion risk (i.e., the risk that the underlying D&O/E&O insurance otherwise available for use by independent directors will be fully depleted through payments made by the D&O/E&O insurer on other covered claims).

    ICI Mutual estimates that over 60% of fund groups purchase some form of IDL insurance, whether from ICI Mutual or from a commercial insurer.  The decision as to whether to purchase IDL insurance necessarily involves the exercise of business judgment, as does the decision on which of the two basic types of IDL  insurance to select - i.e., “Side A-Only” IDL, which responds only to non-indemnifiable exposures of fund independent directors, or “Safety Net” IDL insurance (also sometimes referred to as “Side A&B” IDL insurance), which responds to both non-indemnifiable and indemnifiable exposures of fund independent directors.  As with any business judgments, fund boards and their outside counsel may find it useful to consult resources that can assist them in determining what inquiries they may wish to make, and what information they may wish to consider, in reaching these decisions.   Outside counsel seeking such a resource may access this ICI Mutual study.  

  • How does ICI Mutual work with outside counsel for insureds during the course of a claim?

  • From the initial receipt of a claim notice to the claim’s final resolution, ICI Mutual views claims handling to be a collaborative, rather than an adversarial, process between ICI Mutual and its insureds.  In all claims, big and small, the ICI Mutual legal staff works to develop and foster open lines of communication with outside counsel to insureds, and encourages them to engage with the ICI Mutual staff in ongoing discussions, both with regard to the litigation or regulatory matters underlying their claims, and any associated insurance coverage issues.  ICI Mutual’s more than thirty years of fund industry claims experience evidences that such ongoing attention to pending claims benefits both insureds and ICI Mutual, by reducing the potential for misunderstandings or surprises to interfere with the claims handling process, and by assisting ICI Mutual and its insureds to achieve claims resolutions that can be viewed as timely and fair by all concerned.  Indeed, ICI Mutual is proud of the fact that most insureds continue to remain with ICI Mutual long after their insurance claims are resolved, which ICI Mutual views as a convincing test of good claims handling. Outside counsel seeking more information on the ICI Mutual claims process may access this ICI Mutual publication.