The Embroker Difference: Tailoring D&O Policies to Better Address Tech RisksInsurance Explained
From day one, the goal of our Embroker Startup Program has been to provide venture-backed startups with the best possible experience and coverage when buying the insurance policies that are most critical to their businesses. We take this mission very seriously, striving to truly adapt all of our proprietary policies to provide coverage that is custom-tailored to the specific risk profiles of our clients.
A very good example of this is the way in which our D&O policy addresses some of the more typical D&O liability exclusions that are especially important for tech startups. When either buying directors and officers insurance for the first time or renewing a policy, tech companies need to pay particular attention to exclusions and try to negotiate the limits of these exclusions so that the coverage provided for their directors and officers remains as broad and encompassing as possible.
To shed some light on just how much effort we put into customizing our products to fit the needs of VC-backed startups, let’s take a look at two common D&O liability exclusions that tech companies are often wary of (recently featured on the Perkins Coie Tech Risk Report blog) and how we address them with the coverage we offer through the Embroker Startup Program.
The “Invasion of Privacy” Exclusion
One common exclusion that might seem fairly standard is “invasion of privacy,” commonly found in an exclusion related to claims that arise from bodily injury. Most would agree with the basic constatation that directors and officers are very rarely accused of causing physical harm to others and that a general liability policy should be able to cover such claims if they do arise.
However, since the exclusion includes “invasion of privacy” as a possible form of bodily injury, companies that are exposed to data breaches and other cyberattacks that could compromise the sensitive personal information of others could potentially be exposed by this exclusion.
It would then make sense for any tech company that’s highly susceptible to data breaches and cybercrimes to try and remove this exclusion when negotiating the terms of its D&O coverage.
How the Embroker Startup Program Responds
The Embroker Startup Program does not have an exclusion for “invasion of privacy.” This term is not included in Section IV. Paragraph A “Bodily Injury and Property Damage Exclusion.”
Additionally, we go even further by stating that this entire bodily injury and property damage exclusion is not applicable if the claim is brought by one or more shareholders of the tech company. We recognize that technology companies have a lot of interaction with their investors, which can result in allegations and potential lawsuits. Therefore, if a claim for bodily injury or property damage is brought by one of their investors, that claim would be covered under the Embroker Startup Program.
We’ve also added an exception for this exclusion for any “Side A” losses. “Side A” refers to any loss that is non-indemnifiable, meaning that an individual of the company is sued and the company is unwilling or unable to indemnify (compensate) this individual.
This could result in personal liability for the executive and any associated costs (defense and settlement) will come from their own funds. This is the most critical and important piece of a D&O policy, so we’ve made sure that even if there is a claim for bodily injury and/or property damage, there would be coverage available to the executives and directors in the unfortunate circumstance where the company does not indemnify.
Most other D&O policies do not provide this additional level of protection for the directors and officers of technology companies.
The “Professional Services” Exclusion
This is another D&O exclusion that seems very sensible since all claims that are related to professional services should be covered by the company’s errors & omissions policy or a combination of E&O and cyber liability insurance when specifically discussing technology startups.
However, some might argue that any claim that can cause significant financial and reputational damage to a company, whether related to professional services or otherwise, can quickly turn into a D&O claim and threaten the personal assets of your leadership.
In the case of a major mishap related to the professional services your company provides, one that threatens the overall stability and profitability of your company, your directors and officers could be held liable and carriers could deny coverage in accordance with the “professional services” exclusion stipulated in the terms of your D&O policy.
How the Embroker Startup Program Responds
As already mentioned, it is important to understand that a D&O policy is not intended to cover allegations relating to the rendering or failure to render professional services. These risks are meant to be covered under a technology errors & omissions policy, which Embroker also offers as part of our Startup Program.
That being said, we do have a “professional services” exclusion in our Startup Program D&O policy. However, we have taken measures to make sure that this exclusion is as favorable to our clients as possible.
To start, the professional services exclusion is only “for” professional services claims, as opposed to the more restrictive exclusion that bars coverage for claims “arising out of” professional services.
Additionally, our professional services exclusion will not apply if the claim is brought by a shareholder. Again, we recognize that a technology company’s most frequent risks come from investors, so we try to grant as much coverage as possible for these types of claims.
We’ve also limited the professional services exclusion to only those professional services that are offered “for a fee.” This gives our clients additional coverage because only professional services that are a part of the core service offering and fee bearing are excluded.
We would, however, provide coverage for a claim relating to all other professional services rendered by our clients.
Analyzing Insurance Costs for Startups
Embroker Vertical Insurance Index
This report, derived from over 2,000 aggregated and anonymized Embroker transactions, is broken down by different startup funding and revenue stages. All the data represents actual premiums paid and policy options chosen at the time of purchase.
Even on the advice of a broker, how do you actually know you’re paying a fair price for your Directors and Officers (D&O) coverage? The answer lies in due diligence plus asking your insurance broker the right questions. Here’s the key advice to consider: Know your average costs of D&O …