Corporate indemnification and insurance policies designed to protect Directors and Officers (D&Os) in mining can be complex and there are many variations of coverage and policies to consider before choosing one that can adequately protect your interests, particularly when it involves conducting work internationally
Before you purchase a D&O insurance policy for international coverage, here are some considerations you should take into account:
What is the limit of liability?
The limit of liability under the D&O policy is an aggregate limit, meaning it is the most the underwriters will pay for all claims combined during the policy year including defense costs and expenses. The limit of liability usually applies in addition to the retention which is the amount of each claim assumed by the insured.
The limit on the policy is a shared limit and the policy covers multiple insureds, including all the Directors and Officers and the insured organization with respect to security related claims. In the event of large claims, especially a securities claim, defense costs may run into the millions rapidly reducing the limits available.
What is the retention? – When does it apply?
Retention is the term for a deductible on the D&O policy. This retention applies to all claims except Side A coverage. Some policies specify that the retention does not apply to defense costs and some will even contribute equally to damages along with the insured until the retention has been paid.
D&O policies typically contain a large retention that the corporation needs to pay in the event that they reimburse a D&O for a claim. To ensure that companies do not try and avoid paying the retention by not reimbursing the D&O, many policies contain “presumptive indemnification” language. This forces the corporation to reimburse the insured, or at least pay the deductible, unless the corporation is prevented by law from indemnifying the insured.
Do I control my own defense and appoint legal counsel?
D&O policies can be written on duty to defend or reimbursement policies. A duty to defend policy means that the insurer conducts the defense on your behalf; appointing lawyers and paying legal costs as they are incurred. With a reimbursement policy, you would appoint legal counsel (after consulting the insurer), conduct your own defense, paying legal costs as they’re due. The insurer reimburses costs when you provide supporting documentation. The duty to defend option has a cash flow advantage and the reimbursement option allows you a greater level of control over the defense.
The type of policy that you prefer depends on which of these is more important to you. Directors who are comfortable having more control in dealing with lawyers, conducting and overseeing the defense of the claim, and to whom the cash flow advantage of the duty to defend policy is not essential, often prefer the greater level of involvement allowed by the reimbursement policy, especially where serious allegations and personal reputations may be in question. Some insurers offer options of counsel from which the insured may choose but the selection of counsel must have the experience and knowledge to deal with the type of allegations covered by the policy.
Find out more:
This list is also not exhaustive and there are a variety of other insurance coverages that Directors and Officers of mining companies need in order to address all the risks they face and prevent losses.
Download our free guidebook “Directors' and Officers' Liability Insurance Guide” here to find out how you can protect your company’s assets: