Regulation Risk Ready

1. What was the impetus behind creating CCO Preferred?

Over the last several years, banking and other regulators, including the US Securities and Exchange Commission (SEC), have changed their approach to corporate regulatory and legal infractions. They will now pursue CCOs for personal liability — regardless of whether they were involved in or even aware of the wrongdoing. When several Marsh colleagues identified the issue and a number of clients came to us seeking a solution, we began researching the situation and potential solutions.

2. What were some of your initial findings?

The SEC and other regulators have begun looking at CCOs as gatekeepers and as having unique responsibilities beyond being corporate officers. They are responsible, in regulators’ eyes, for ensuring that compliance policies and procedures are obeyed internally, which can be difficult. While insurance protection was available, the coverage wouldn’t necessarily respond in some situations, including cases where hefty fines and penalties were imposed despite the lack of intentional wrongdoing or even knowledge by the CCO.

3. Aren’t CCOs already covered by their firms’ directors and officers (D&O) insurance?

Typically, CCOs are considered officers for the purposes of the D&O policy, but not always. Keep in mind, though, that a D&O policy is shared among all directors and officers and in some cases the company and certain other employees as well. In the event of a multifaceted regulatory action and/or litigation, D&O insurance limits may be exceeded and be insufficient to protect CCOs who become individual targets of investigation.

4. How does CCO Preferred work with existing D&O coverage?

CCO Preferred was designed to complement an organization’s existing D&O program by providing excess dedicated limits for the CCO. The policy is triggered when underlying D&O coverage is exhausted or does not respond to the individual claim against the CCO and corporate indemnification doesn’t exist.

5. What was the biggest challenge in creating this product?

The most challenging piece was providing meaningful protection for CCOs who might face liability despite not knowing about or participating in the alleged wrongful conduct while not providing coverage for CCOs who intentionally engage in wrongful conduct.