Why You Can’t Afford to Be Without D&O Insurance
Vol. 16 No. 5
Directors & Officers insurance—also known as School Legal or Trustee Liability insurance—may be the most critical insurance and protection for your school. Damages sought under D&O insurance can range anywhere from a nuisance claim to one seeking millions of dollars in compensation.
This may include a request for punitive damages if the action in question is considered egregious enough—especially if the school knew of a wrong action occurring and did nothing to stop it.
It is critical, therefore, that your D&O policy not only cover actual losses, but provide added limits for defense, also known as “defense outside of policy limits.” This ensures no eroding actual claim limits, should the plaintiff prevail.
The ‘Cost’ to Insure
Depending on the size of your school, limits of coverage, and options selected, premiums can range from under $1,000 per annum to more than $10,000. You likely have a retention or deductible (perhaps $1,000, $5,000, or more) to help reduce the cost of insurance. Keeping some risk can be a good thing. It will save you money and allow you to afford higher limits of protection. Make certain, however, you don’t self-insure for more than your school can afford to lose by wrongly assuming a claim will never occur.
You may find that for essentially the same premium, you can increase your upper-end limit of coverage from, for example, $1 million to $2 million by increasing your retention from $5,000 to $10,000. This provides greater protection for an “unknown” loss, for a known cost. But, be certain the trade off is worth it. The ultimate cost of being underinsured can be far greater.
Types of Claims You May See
Claims under a D&O policy fall into three major areas.
- Employment practice claims, such as wrongful termination, are responsible for nearly 60% of all claims under this coverage.
- Third-party claims represent the second largest area with about 35% of all claims, and are increasing. These claims are usually brought by parents under the legal theory of breach of contract, and include claims of failure to educate, failure to provide a safe environment, wrongful student discipline, or other “promises” the plaintiff feels were not kept.
- Other claims may include vendor suits, suits from the community, etc.
Types of Contracts and Policies
There are two types of policies: “Occurrence” and “Claims Made.” While the Occurrence policy is the better of the two in some regards, it is not as common. Such a policy covers an incident that occurred while the school was insured—regardless of when the claim is ultimately filed. The Claims Made policy, on the other hand, has as its determining factor or “claims trigger” not only when the incident occurred, but also when the claim was first reported or “made.”
What Should Be Covered
Your D&O policy should cover risks or exposures, such as:
- all manner of employment practices liability including wrongful termination, wrongful hiring, discrimination, harassment, and misrepresentation;
- entity coverage;
- duty to defend costs as well as the limit and right to settle or not settle punitive damages (where allowed by state law);
- third-party discrimination for nonemployees;
- sexual misconduct coverage and workplace violence coverage;
- cyber-liability coverage and fiduciary coverage;
- educational wrongful acts coverage (breach of contract); and
- workplace violence and crisis management.
What is Generally Not Covered
Recognize what risks or exposures are covered and will “trigger” protection. Equally important, however, is knowing what is not covered, and making no assumptions. General exclusions include willful acts or intentional misconduct; criminal acts, war, and terrorism; and environmental and pollution exclusions.
Also, be certain you know what actions you should take when presented with a claim (or even a threat or complaint), versus what actions may complicate the defense, or even invalidate your coverage.
As a school leader, keep in mind that D&O insurance may be the most critical insurance and protection you provide to your school and its community members. It is your agent’s job to help you understand all of this. Contact her or him (or your insurance company) as you work through this process. Review the policy so you can ask questions.
You may even consider “going to market” by conducting a formal request for proposal. This process typically invites your current broker and others to bid on this coverage.
If done well, you will learn more about this coverage simply by going through the process. It may confirm your current choice of broker or it might indicate that your current broker is not as knowledgeable as another. Therefore, it may be time to make a change.
Additional ISM resources:
The Source for Trustees Vol. 15 No. 1 Don’t Let Your D&O Lapse!
The Source for Business and Operations Vol. 2 No. 3 Managing Risk by Understanding Your Insurance Policy
Additional ISM resources for Gold Consortium members:
I&P Vol. 41 No. 4 Risk Management Assessment: Reduce Your School’s Exposure
I&P Vol. 35 No. 9 How to Scrutinize an Insurance Policy
I&P Vol. 41 No. 7 Selecting Your Insurance Broker