What is D&O Insurance?

Speaker 1 (00:00:03) - Good day, everybody. Welcome to the deal, Scout. On today's show we're going to talk about D and O insurance with Mr. Chaz. Chaz what the heck is D and O insurance.

Speaker 2 (00:00:15) - What's going on? Hey, do you know insurance? Here's what you're going to find. It is directors and officers liability insurance. You'll find that oftentimes whenever you have executives and a board of directors, there are opportunities to where general liability isn't going to cover. And professional liability or errors and omissions isn't going to cover what has go. What happens when there could be litigation or a regulator coming after the company, and particularly coming after the executives, the DDS and those directors and officers? What you'll find is that these notes can be listed individually alongside the company or just individually in litigation. And and you can have a pain point to where their personal assets can actually be exposed. So as a result, you'll find both private and public companies, which is most of what we do. You'll find that those people will have directors and officers insurance as one of the one of the ways in which they mitigate and transfer some of their risk away from the company.

Speaker 2 (00:01:25) - And the reason why I say transfer the risk, because typically, if you're going to have an executive come into your company, you're going to have a board of director come on to your board. Those people are going to have something called an indemnification agreement, basically meaning that you're going to make them financially whole. And that agreement is oftentimes fulfilled in large part by directors and officers liability insurance. you'll see that there's really three main components or parts to it. There's what's called side A, side B and side C coverage. So side A coverage is the most foundational piece. It's the part that truly protects the directors and the officers of the company. So you'll see that oftentimes there is a $0 self-insured retention associated with that component. but in self-insured retention, by the way, that's akin to a deductible. But deductible is normally you would pay at the end of any kind of loss and claim a self-insured retention is you pay this first, then the insurance company kicks in. So side A protects the D's and the O's.

Speaker 2 (00:02:34) - But then you have what's called side B and side C coverage. These are going to protect the balance sheet of the company. So side B is going to allow the company to have some love come back from the insurance carrier in regards to expenditures. Legal. for example, maybe they have a subpoena and then there ends up being some travel and cost associated with it. Things of that nature. You can find that these can all fall under the purview potentially of your side B coverage, along with some other nuances. And then side C is going to be for any judgment or, or settlement that might be levied against the care against the company itself. And then the carrier can kick in and contribute again towards protecting the balance sheet on that. So side B, side C it's all about the company side A it's all about the D's and the O's individually.

Speaker 1 (00:03:34) - Yeah. Copy that. So you know we look at pitch decks all day long. We look at companies that are growing and doing well and looking to go, public markets.

Speaker 1 (00:03:43) - let me ask you a question. A lot of times we see these pitch decks or the, you know, we see the cap, the cap tables and such like that. We're looking at the people who say, I raise my hand, I'll be a director, I'll be a, a board of directors or something like that. Our most board of directors, aware of their risk of putting their names on as a board of director.

Speaker 2 (00:04:04) - I think that that really comes down to the experience of the director member, somebody who's a seasoned veteran. They know these things typically because you find it out along the way. If you don't know it just from school or what have you, or just maybe you have a mentor. So, you'll find that whenever you have somebody that's seasoned, they're very well aware of, you know, and the importance of it. But if there's somebody that's more of a neophyte and, and the leadership capacity of a company, then you'll find that many times they may not know and they may not understand really how that indemnification agreement would get played out.

Speaker 2 (00:04:45) - And it's kind of an afterthought. They look more at the big picture of how they can be supporting the company, as opposed to the liability and risk exposure that they have on their own personal assets.

Speaker 1 (00:04:56) - Yeah. So, you know, we take a company public or something like that. I'm on the board of directors. I can be personally held liable if the company does something and get sued. They could come after my personal assets potentially.

Speaker 2 (00:05:09) - Yeah. Let's take a big example. You know, Elon Musk bought Twitter. Right. And and. The board was like, we're not selling to you. And he was like, yeah, you are. And he said he offered them such an insane price per share that he forced the hand of the board, because if they wouldn't have sold, there would have been a class action shareholder litigation onslaught that would have been filed against the board of directors, and they would have exceeded by far any, you know, coverage that would have been there. And as a result, all of their personal assets were going to be exposed.

Speaker 2 (00:05:47) - So they wanted to take their moral high ground. Right. But at the end of the day, they weren't going to take it at the risk of losing everything that they've built. And for us at Churchill Insurance Agency, it's literally that's what we do. You know, insurance, it's all about working hard to protect what these teams are working hard to build.

Speaker 3 (00:06:06) - Yeah.

Speaker 1 (00:06:07) - Super cool. two more questions. One question is, you know, who usually fronts the cost of, you know, insurance or what kind of options are there? And then two. Why don't you wrap us up at the very end of where people could go to find, find your information and connect with you and do a deal together.

Speaker 2 (00:06:24) - Yeah. So you'll find that the cost for, you know, is typically going to be paid for by the corporation. that's just part of, again, the indemnification agreement for them to have these C and C level executives and these board members as a part of their team. It's a cost of doing business.

Speaker 2 (00:06:42) - you'll find that in some cases, we will have board members that will come to us. That said, on multiple boards, they will, they'll actually get their own private dino coverage that that goes above and beyond anything else. And then to connect more with us, it's Churchwell agency.com. Or you can give us a call (844) 604-1357. Boom.

Speaker 1 (00:07:04) - And we did that all in seven minutes or less. Fellow dealmakers, I hope you're enjoying the seven minute series. If you have a deal that you'd like to talk about here on the deal, scout, head on over to the deal scout.com, fill out a quick form and maybe get you on the show next. Till then, we'll talk to you all on the next episode. See you guys.