Executive Liability Insurance for ESOP Companies and Their Executives

Jeff GelburdBusiness Insurance, ESOP, Insurance

The ESOP (Employee Stock Ownership Plan) Association’s endorsed Executive Liability Insurance Program allows its members to purchase insurance protection in the areas of (i) Directors and Officers Liability, (ii) Fiduciary Liability, (iii) Employment Practices Liability and (iv) Crime. Additional coverages are now available such as Cyber Liability Insurance on a group basis thereby providing members with more competitive policy premiums and coverage terms than if they were purchasing this protection by themselves in the traditional marketplace. The program is underwritten for Association members on an exclusive basis by Great American Insurance Company and is endorsed by the Association.

Shared Vs. Separate Policy Limits

Typically, the D&O, Fiduciary and EPL coverages can be purchased under one policy. The criteria of corporate assets and employee count is normally how insurance company underwriters base their premiums. A policy limit that is “shared” involves the coverage or limit spread among the three aforementioned coverage types. So a claim payment involving one coverage of the policy would reduce the policy limit available to pay potential future claims involving the other two coverages. Policy premiums are typically lower if coverage is purchased on a “shared” basis. Having a policy with “separate” limits means that a separate limit applies to each of the three coverages independently.

ESOP Companies Represent a Variety of Industries

In general, ESOP companies participating in this affinity program range from small to large, all are privately held, represent many different types of industries and are domiciled in almost all of the fifty states. Not surprising, the majority of the policyholders are made up of professional type firms (engineering, architectural, environmental, financial, healthcare and insurance). This group represents roughly 46% of the policyholders. Manufacturing/ Distribution represent 24% of the group. Roughly 13% are in the Construction and Transportation sector. Media/Communications and Retail represent 10% and 7 % respectively.

When considering what limit of liability to purchase, keep in mind that defense costs (legal fees) paid on a covered claim will erode the policy limit of liability. Legal fees to defend a claim can exceed $500,000 and even beyond $1,000,000. In addition to corporate asset size and employee count, consider whether your policy “shares” the limit with the other coverages offered by the policy or on a “separate” basis. Also consider whether your policy also insures other retirement plans like a 401(k) and the percentage ownership of your ESOP of the company. The higher percentage of employee ownership, the greater the potential of a significant size claim.

To learn more about the ESOP program, contact Jeff Gelburd, CPCU, ARM, Vice President, Commercial Solutions.

Share this Post