Home > Property & Casualty > Market Basket case: Potential coverage exclusions to consider

Market Basket case: Potential coverage exclusions to consider

The Demoulas/Market Basket saga has dominated the news here in New England over the past month. From a risk management perspective, the developments of the case should signal risk managers to review their Management Liability policies and insurance program, especially in the following areas:

Crisis Management coverage – Some insurers offer a sublimit of coverage to assist companies that must announce adverse news relating to business operations. Typically, insurers offer a select group of public relations firms to assist the insured with press releases and interviews. The expense sublimit can vary between $25,000 to $75,000 by Insurer.

Shareholder Exclusions

  • Shareholder exclusions – These exclusions preclude coverage for claims made by individuals who own a large percentage of the insured entity’s stock (typically more than five percent to ten percent). The rationale for the shareholder exclusion is that such claims are often the result of in-fighting or personality conflicts between major shareholders and management, rather than being caused by managerial errors involving substantive business decisions.
  • Family Exclusions – similar to the Shareholder Exclusion, the Family Exclusion will preclude coverage for certain family members who own a significant percentage of the entity’s stock. The exclusion wording is fairly broad and will extend to multiple generations (i.e. father, child, and grandchild) and will include any shares held in a family trust.

Personal Conduct Exclusions: Directors’ & Officers’ Liability (D&O) policies routinely contain exclusions for criminal conduct, fraud, and illegal profit or advantage taken by the directors or officers. These exclusions can often be narrowed by limiting the scope to require “final adjudication” language, which should obligate an insurance carrier to reimburse defense costs until a judicial decree in the underlying lawsuit establishes wrongful excluded conduct.

“Insured versus Insured” Exclusion: The Insured v. Insured” exclusion typically precludes coverage for claims made by or on behalf of the insured corporation, its affiliates or directors and officers against other insured persons. Over the years, the standard exclusion has been modified to provide coverage carve-backs for certain types of claims for which coverage would otherwise be precluded, such as derivative claims, employment practices claims, former Directors’ & Officers’, whistleblowers and foreign jurisdiction claims.

Employment Practices Liability (EPL): EPL coverage is designed to cover claims arising from wrongful acts in the workplace. The most frequent types of claims alleged under such policies include wrongful termination, discrimination and sexual harassment.

Fiduciary Liability: Fiduciary coverage is designed to cover the trustee, employer, employee, fiduciary and professional administrator for claims alleging a breach of fiduciary duty, or an error or omission, with regard to employee benefit programs including defined benefit plans, 401(k) plans, medical plans, pension plans, and any other benefit program as imposed by ERISA.

If any of these policy exclusions concern you or your firm, we encourage to discuss this with your WGA Client Executive, or member of he ExecutiveRisk team, about ways to mitigate your exposure.

About the Author

Mark Stiles is an Assistant Vice President at William Gallagher Associates and a member of the ExecutiveRisk Practice. He works with private and nonprofit organizations to assist them and their executives with protection for their exposures to Directors’ & Officers’ Liability, Employment Practices Liability, Fiduciary Liability, Crime, Kidnap & Ransom and Extortion.

617.646.6743 | Mstiles@wgains.com | Connect with Mark on LinkedIn |MORE POSTS BY MARK

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