2. Can the company guarantee the limits, terms, and conditions of its D&O insurance for the next five years?

D&O insurance is “claims-made” coverage, so future claims against retired directors and officers will be covered (if at all) only under the D&O insurance policies in force at the time of the future claim. The company may not be willing or able to maintain the same level or quality of coverage for the next five years for several reasons:

• No Guarantee of Renewal. There is no guarantee that your company will continue to renew coverage for the next five years.
• Change in Terms and Conditions. The terms and conditions of D&O policies can change annually. If the company’s risk profile or financial condition changes, it may not be able to purchase the same limits or terms and conditions that exist today. Also, the price of coverage could become cost prohibitive.
• Change in Control. Should the company merge or be acquired, new management may have different views toward D&O insurance or be less inclined to continue coverage for former directors or officers.
• Market Changes. The D&O insurance market has a history of volatility. Both the availability and terms of coverage can become more restrictive and cost prohibitive.