Directors and Officers (D&O) and Professional Liability insurance, also known as Errors and Omissions Liability (E&O), is a specialized product for Asset Managers. Unlike traditional D&O and E&O programs, where coverage is purchased separately, Asset Management Liability programs combine both the D&O and E&O coverages in the base policy structure. Many claims made against Asset Managers involve both the D&O and E&O coverage parts, so combining the coverages eliminates potential gaps in coverage due to different policy forms as well as “finger pointing” between different insurance companies arguing “who will pay for what” at claim time. Other coverages such as Employment Practices Liability and Fiduciary Liability can be added to Asset Management liability policies.
The following is a brief outline of some typical types of claims Asset Managers face:
DIRECTORS & OFFICERS LIABILITY (D&O)
Claims brought by shareholders of companies against the management firm or, in the case of private partnership, partnership insureds who serve as directors or officers of a portfolio company alleging securities laws violations, breach of duty and/or mismanagement (usually as a result of poor performance).
Claims brought by shareholders of portfolio companies against directors or officers for conflict of interest.
Claims brought by a government entity (SEC), alleging improper business activities.
PROFESSIONAL LIABILITY (E&O)
Claims brought by limited partners/investors against the investment manager for mismanagement of their invested assets, breach of fiduciary or other duty. (This exposure can be limited substantially but not entirely by strong indemnification and hold harmless agreements).
Claims brought by shareholders of portfolio companies themselves against the private partnership and its directors, officers and employees for alleged acts, errors or omissions in rendering or failing to render professional services to the portfolio company.
Claims brought by the portfolio companies against the private funds, venture capital, private equity or investment firm.
GENERAL PARTNER LIABILITY (GPL)
Claims brought by limited partners (outside unaffiliated investors) against the general partner of the private partnership for breach of fiduciary duty.
Just as no two asset management firms are the same, no two policy forms are alike. The terms and conditions of policy forms can differ greatly, as can the appetite among the specialty insurance companies that underwrite this coverage. SKCG can structure a comprehensive portfolio of tailored insurance coverages for the traditional and alternative asset management industry. SKCG has broad experience insuring Hedge Fund Managers, Private Equity Firms and Investment Advisers.
Typical underwriting information needed for an accurate premium quotation may consist of the following:
Insurance Company Application
Complete copy of the most recent DDQ
Complete electronic copies of each fund's PPM (both domestic and offshore)
Complete ADV Forms, Part I & II with Schedules A-G (if you are registered)
Any presentations, marketing information or pitch books