Directors and Officers Liability Insurance: An Essential Coverage for the Real Estate and Construction Industry By: Craig M. Hirsch In this article, Craig M. Hirsch provides an overview of director and officers liability insurance and the coverage such insurance can provide to participants in the real estate and construction industry. A construction company defends a lawsuit alleging its executives misrepresented the scope of indemnification for building defects throughout work on the project. A real estate developer responds to a homeowner association’s breach of fiduciary duty claim seeking damages and the costs to repair common areas of a mixed-use property. A real estate investment trust (“REIT”)
settles a securities class action filed by a property management firm’s shareholders alleging misleading statements in connection with the REIT’s acquisition of the firm. All these real-world litigation scenarios potentially implicate directors and officers (“D&O”) insurance coverage for underlying losses and financial exposures. Unfortunately, the real estate and construction industry often overlooks D&O policies as an indispensable part of a company’s insurance portfolio to address risks not adequately covered by other lines of coverage. The Five “Ws” of D&O Coverage for Real Estate and Construction Companies Who does it cover? Generally, a D&O policy covers a company and its management for losses arising from third-party claims alleging corporate misconduct in running the business. The scope of coverage is determined by the D&O policy’s terms and conditions read together and the unique definition of key words and phrases within the policy form. The definition of “insured entity” or “named insured” typically includes the policyholder-entity that purchased the D&O policy, as well as its “subsidiaries” over which the policyholder exercises “management control” (i.e., an ownership stake or written agreement to select a majority of the board of directors). Publicly-traded corporations, privatelyheld companies and not-for-profit entities can structure D&O insurance programs with industry-specific wording tailored to their respective risk profiles. D&O policies also cover the company’s directors and officers as “insured persons” and commonly extend coverage to the General Counsel and Director of Risk Management positions. Many D&O policies also cover
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