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61 Cards in this Set
- Front
- Back
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fiduciary duty
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duty to act in the best interests of another
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business judgment rule |
legal rule that provides that a director will not be personally liable for a decision involving business judgment provided the director made an informed decision and acted in good faith |
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ultra vires |
act of a corporation that exceeds its chartered powers |
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major functions of a corporations's board of directors |
board of directors establishes corporate policy, makes major business and financial decisions and appoints the corporations's executive officers to manage the corporation's daily operations |
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4 fiduciary duties of the directors and officers of a corporation |
1. duty of care 2. duty of loyalty 3. duty of disclosure 4. duty of obedience |
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derivative suits |
derivative suit is lawsuit brought by 1 or more shareholders in the name of the corporation. any damage recovered go directly to corporation not to the plaintiff stockholder |
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nonderivative suitts |
suits against directors and officers are not made in the name of the coporation and may be initiated by customers, competitors, employees, or other person outside the corporation |
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typical basis for class action lawsuits against directors and officers of a corporation |
based on wrongful acts related to securities.
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example of common allegations for directors and officers |
material misrepresentation, alleged misrepresentations, or insiders profitably sold their personal holdings in the corps stock |
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why corporations might settle claims against directors and officers even if they believe they have defense to the claims |
defense cost and amount of time required to prepare an adequate defense can be devastating |
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how settlemtn of claims against corp directors and officers can present problems for indemnification of directors and officers |
often indemnification under common law requires that the corporate officers and directors successfully defend the suit. when suit settled, it is terminated w no determination of wrongdoing. therefore not clear if d&o entitled to indemnification |
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reason risk control should be central part of the management of D&O loss exposures |
claims against D&O can create significant defense and settlement costs.
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coverage A of D&O liability policy |
insures individual directors and officers. indemnifies the corporation's D&O for covered claims only when indemnification is not required by law |
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coverage B of D&O liability policy |
insures corporation for amounts that it is lawfully permitted or required to defend or settle claims. if director is liable, loss is paid under coverage B |
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entity or coverage C of D&O liability policy |
entity coverage which makes the corporation itself an insured for claims made against it bc of wrongful acts covered by the policy. |
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wo entity coverage, what extent is corporation insured under D&O liability policy |
covers the corporation only for indemnification of its directors and officers (coverage B). no coverage for loss attributable to the entity's wrongful acts |
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per def of "claim", what extent do d&O policy cover criminal proceedings angainst D&O |
some policies define "claim" to include a criminal proceedings. even if covered, coverage is limited to defense costs |
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"loss" definition affect the application of D&O policy limit |
defines loss to include defense costs in the per loss limit of liability. D&O defense costs is included in the limit
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examples of problems posed by D&O liability loss exposures that are better handled under claims made rather than occurrence made |
* making errors in corporations financial statements * claims alleging mismanagement *claims alleging that board approved excess compensation for CEO |
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variations that can apply to extended reporting provisions (tail coverage) in D&O policies |
some policies provide 30-60 day automatic tail coverage and option to add 1-5 years |
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prior acts coverage and warranty in D&O policies |
D&O policies w prior acts cover claims made during the policy period for wrongful acts that occurred during policy period or anytime before the policy period. coverage to a warranty made in the ins application that the D&O did not know of circumstances that result in a claim
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general definitions of insureds under cov A of D&O policy |
individuals directors and officers, includes any person who were, now are or shall become duly elected or appointed directors or officers of insd corporation. |
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typical D&O exclusions catergories |
* loss exposures better covered by other ins * claims covered or reported under prior policies * failure to effect or maintain insurance * insured vs insured exclusion * low exposures that are difficult to insure |
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duty to defend under D&O pol differs from most other commercial liability pol |
under d&o, insd typically selects and pays the defense lawyers and pays other defense expense. on other commercial liability insurer chooses and pays the expense. |
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allocation of loss issue that exists in D&O policies |
in many suits, plaintiff's allegations include acts not covered by the D&O policy. loss expenses must be allocated btwn covered and noncovered elements of the loss |
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use of a so-called hammer clause to modify the traditional consent-to settle clause in some D&O policies |
some D&O policies contain an absolute consent to settle provision stating that the insurer cannot settle claim wo insd's consent. hammer clause specifies that the insd must take over defense and pay any further defense expenses plus part of any judgment that excess the amount insurer could have settled claim |
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provisions on D&O policies regarding severability of interests |
D&O pol often provide misrepresentation in the application will not defeat cov for D&O who did not sign the application and were unaware of true facts. also excludes certain wrongful acts |
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deductible provisions under D&O policy |
deductible aka retention. ded applies to defense cost and judgment/settlement |
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outside directors liability policy |
policy covering the liability of a corporation's directors while they serve as outside directors for another corporation |
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independent directors liability policy |
D&O liability policy that insures only the independent directors named in the policy |
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side A-only coverage |
directors and officers liability insurance that covers only the individual liability of the insured D&O |
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2 approaches to providing D&O liability coverage for outside directors |
1. endorse the corporation's D&O liability policy 2. obtain separate outside directors liability approach |
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what are advantages of Side A only D&O coverage |
when corporation's regular D&O policy becomes frozen by a bankruptcy court. assets cannot be frozen |
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purpose of independent directors liability policy |
provides source of recovery for independent directors that will not be diluted by claims against other directors |
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4 major types of employment practices liability claim |
1. discrimination claims 2. wrongful termination claims 3. sexual harassment claims 4. retaliation claims |
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role of Equal Employment Opportunity Commission (EEOC) in workplace discrimination claims |
after employee files charges for discrimination, EEOC notifies the employer of the claim and investigates whether there is reasonable cause to believe discrimination occur |
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how the legal doctrine of "employment at will" affects the employment relationship btwn employers and employees |
will allow employee or employers to terminate the employment relationship with or wo cause at any time |
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exceptions to "employment at will" that may make it more difficult to fire employees wo adverse consequences |
impaled contract. some courts stated that employment at will is subject to covenant of good faith thus requiring just cause for firing the employee |
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types of EPL offenses in which law recognize claims of a hostile work environment |
law recognizes claims of hostile work environment in context of sexual harrasment, race & disability discrimination |
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employment practice liability (EPL) insurance |
insurance that covers an organization, its directors and officers, and its employees against claims alleging damages bc of wrongful employment practices such as sexual harassment, wrongful termination and unlawful discrimination |
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2 basic approaches to defining wrongful act covered by an EPL policy |
1. "broad form" defines wrongful act broadly in general terms. 2. "named perils" is to list the specific types of acts that are covered. |
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definition of "employee" important to EPL prolicies |
includes leased employees |
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exclusions that apply to an EPL policy |
* claims arising out of circumstances reported under a prior EPL policy * deliberate fraud * liability assumed under a contract, other than employment contract * bi or pd other than emotional distress * violation of the employee retirement income security act * obligations under workers comp, unemployment comp and similar law * cost incurred to comply with Americans with Disabilities Act * Front pay and back pay |
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disadvantages of D&O/EPL combination policies |
EPL cov on these policies are not as broad as found in stand along EPL policies and only one set of limits may be provided for both coverages
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additional cov and services provided by some insurers in connection w EPL pol |
*coverage for discrimination claims made by 3rd parties as opposed to insd's employees * coverage for the consequences of workplace violence incidents such as business income losses * cov for reputation management cost * EPL risk control services |
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basic type of claim that constitutes fiduciary liability loss exposure |
claim made by the beneficiaries of an employee benefit plan against the plan officials for breach their fiduciary duties
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federal law governs all types of sides of employee benefit plans |
Employee Retirement Income Security Act (ERISA)
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who qualifies as an employee benefit plan fiduciary under ERISA |
anyone whose role in employee benefits involves discretionary control
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summarize fiduciary duties of employee benefit plan fiduciary |
* loyalty - fiduciary action must be in the best interest of the plan * prudence - ficuciary must perform their duties w care, skill * diversification - fiduciary must ensure plan's investments are sufficiently * adherence - fiduciary must act according to the plan documents |
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name who could be liable for breaches of fiduciary duty committed who is an employee |
employer may be held vicariously liable for breaches of fiduciary duty committed by its employees |
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fiduciary liability insurance |
insurance that covers the fiduciaries of an employee benefit plan against liability claims alleging breach of fiduciary duties involving discretionary judgment |
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4 major fiduciary duties of a person involved in design, administration, of benefit plan |
1. loyalty 2. prudence 3. diversification 4. adherence |
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meaning of an insured plan in fiduciary liability policy |
1. any ERISA employee benefit plan operated by insd and labor org for benefit of sponsor's employees
2. any other employee benefit plan sponsored solely by insd for benefit of its employees |
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3 elements typically included in def of wrongful act covered by fiduciary liability pol |
1. breach of responsibilities
2. any other matter claimed against insd solely bc of their service as fiduciaries of insd plan 3. negligent act |
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exclusions for obligations under workers comp, disability, and unemployment laws in fiduciary liab pol differs from those in d&O and EPL polices |
fiduciary liability pol usually include exception to the exclusion for obligation under workers comp under the Consolidated Omnibus Budget Reconciliation Act (COBRA) |
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exception to exclusion for fines and penalties in EPL pol |
pol exclusions often contain an exception to the exclusions of fines to cover certain penalties imposed by ERISA |
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how fiduciary liability pol treat losses resulting from failuer to collect contributions to or to properly fund the plan |
most pols contain an exclusion for any loss resulting from insd's failure to collect required employee contributions or to properly fund the plan |
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4 major objectives accomplished by the HIPAA amendment to ERISA |
1. set standards for health insurance "portability" by providing credit against preexisting condition exclusion periods
2. limit exclusions for preexisting medical conditions 3. prohibit discrimination in enrollment and in prems charged to employees 4. improve disclosure about group health plans |
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employer liability created under HIPAA regarding employee medical information |
HIPAA calls for protection of employee medical information and subjects the employer and fiduciaries |
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2 different ways which fiduciary liability insurers have responded to the additional liabilities under HIPPA |
1, to develop HIPAA coverage endorsements that broaden the definition of sponsored plans to include those subject to HIPAA
2. add breach duties imposed by HIPAA to the policy definition of wrongful act |
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employee benefits liability endorsement to an employers CGL and fiduciary bonds with respect to fiduciary liability coverage |
endosement provides coverage for administrative errors. another ins provided by fidicuary bonds required by ERISA. bonds provide cov for dishonesty
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