Basic Premium Factor

finance a la shmoop what is directors and officers insurance coverage? well if

you ever sit on the board of a public company you'll want this or at least a [People sat at a table in a meeting]

feeling you'll sleep better at night if you have it. D&O insurance is just

insurance like any other kind of insurance only it insurers for board

stupidity or rather legal definitions of dumb things companies do that costs

shareholders money and for which the Board of Directors then gets blamed and

sued in theory if company ever lost a large lawsuit well at worst they would [Man and woman in a court]

just hand over the keys to the company itself to whoever won the lawsuit

famously warren buffett founder and CEO Berkshire Hathaway and the largest

seller of insurance in the world through Geico and other subsidiaries does not

allow his Board of Directors to carry any D&O insurance because he feels that

if the company stumbles so stupidly because of poor governance that he along [Warren Buffet appears]

with all of his boards should suffer the resulting personal bankruptcies that

would follow with all the lawsuits that would be piled on and yes sometimes

companies are so corrupt or stupid or unlucky that the damages in a lost

lawsuit exceed the value of the entire company itself and then the insurance

company has to be called to cover whatever is left in legal bills after

the company has been handed over in practice it's not quite that dramatic

companies carry D&O insurance for smaller things as well like a company

stock goes from $22 to $14 after a bad quarter and some ambulance-chasing [Company stock graph appears]

lawyer from New York is able to convince a judge that proper disclosure wasn't

made about the lack of sales in the Uzbekistan office and to make the

lawsuit go away the company held hostage pays seventeen million dollars in

damages to shareholders making a claim the key thing is the shareholders here

get like pennies a share and the lawyers get millions a typical D&O policy for a

smaller public company might carry a ten million dollar deductible so in this

case the first ten million of that seventeen comes out of the company

coffers and then the money beyond that comes from the insurance company that

wrote the coverage policy well historically the business of writing D&O

policies has been a great business for the insurance industry as tons of

premiums get paid by nervous Nelly directors who in fact never lose [Hammer nails sign to the wall]

lawsuits and well you know the gravy train keeps on graving... [Man riding a gravy train]