We have spent some time in the last few weeks discussing some Fiduciary Best Practices Related to Fees and Liability Insurance Coverage, Appointing a Non-Company Officer as Fiduciary, and Advancing Defense Costs under Corporate Indemnification Agreements. When making sure your company and its fiduciaries are properly covered, it is also important to review your directors and officers liability insurance coverage. Directors' and Officers' Insurance discusses the importance of an effective directors' and officers' insurance program:

Although the best protection should continue to come from conscientious attention to directorial and management responsibilities, an effective D&O insurance program, in combination with well-drafted indemnification and exculpation provisions in corporate charters and by-laws, is a critical component of protection for directors and officers at a time of increased scrutiny by shareholders, courts and regulators.

It also discusses six items to consider when developing your insurance program and selecting your insurer(s):

1. Side A excess coverage – There are three types of coverage (A, B, and C). Type A is the only coverage that directly indemnifies a director and B and C, which are company claims, can exhaust the coverage while leaving the directors under-covered. Purchasing additional A-only coverage is a way to provide additional protection and minimize this problem. A-only Difference-in-Conditions ("DIC") excess coverage is another option.
   

2. Financial condition of insurers – Ways to provide protection from having your insurer go insolvent include purchasing excess insurance in small layers from different insurers to diversify risk, spending more to be covered by insurance companies in a strong financial position, and taking into account many factors when making a decision, including "ratings, broker input, policyholder surplus, level of regulatory oversight, policy language, claims payment history and cost".
   

3. Bankruptcy – Understand how your coverage would be impacted by the bankruptcy of your company. Is the insurance policy an asset of the bankruptcy estate subject to claims? What other bankruptcy terms are in the policy.
   

4. Policy wording – The policy language and terms should be reviewed and negotiated annually. Ask about improvements in terms that have been offered to other insureds.
   

5. Excess insurance – Excess insurers and policies should be reviewed to make sure they are consistent and mutually reinforcing, even if the primary insurer has paid less than the full amount due to a compromise with the policy holder.
   

6. Worldwide coverage – Make sure to consider international terms.
   

D&O Insurance Coverage also takes a look at the common coverage in D&O policies and identifies 15 things to watch for:

Now, granted, there are many, many other factors that lead some companies to perform better than others – everything from the sum total of their team building and employee engagement activities and benefit packages, to the strength of their leadership teams and of their industries. Still, our data reveal that companies with ESOPs perform better than those without them on some other key metrics…While ESOPs are not for every organization, you may want to consider implementing one to increase the commitment and productivity of your workforce, and create a culture of ownership.

• Determine the filing deadline.
• Even if taking advantage of the determination letter filing delay, make required plan amendments.
• Locate filing-related documents.
• Determine who will prepare the plan restatement.
• Determine the preparation timing.
• Determine if IRS review of nondiscrimination testing will be requested.
• Consider if a Voluntary Correction Program (VCP) filing is needed.
• Prepare the necessary filing package(s).

Here are some key takeaways:

Bunch v. W.R. Grace: What a Breach of Fiduciary Duty Doesn't Look Like provides two key takeaways:

IRS Revenue Procedure 2007-44 – Rulings and determination letters established a five-year system of staggered cyclical remedial amendment periods for every individually designed qualified plan. Plan sponsors need to apply only once every five years within their applicable 5-year remedial amendment cycle for an opinion, advisory, or determination letter. The 5-year remedial amendment cycle is determined by looking at the last digit of the plan sponsor's EIN:

For many years, courts have followed the "business judgment rule", under which a company's business decision-whether to pay more salary, establish an employee benefit plan or otherwise- is not subject to ERISA. In ruling that
ERISA fiduciary responsibilities can apply to a company's business decision-even though the Court limited this ruling to situations in which an ESOP fiduciary is also a company director or officer and can directly profit from the decision-the Court has made a surprising incursion into the business judgment rule. If an employer sponsors an ESOP, or any plan which has invested in employer stock, to avoid the application of ERISA fiduciary rules to company decisions, the employer might consider appointing a fiduciary to the ESOP or plan who is not a director or officer of the company. It is not clear that, under the Court's view in this case, merely excluding the plan fiduciary, who is a director or officer, from participating in the company decision to benefit him or her will prevent the application of ERISA fiduciary rules.