We do not do product reviews here at The DandOEandO Monitor, but occasionally a new product comes to the market that should make everyone step up and take notice. We saw that recently in the U.S. with Chartis’ Executive Edge product, which was widely copied by way of enhancement endorsements to competitor forms. While that certainly does not dictate what is the coverage of choice, at least some kudos are due Chartis for their innovation and market leadership.

Darcstar™ appears for now to be a form available, at least initially, in marketplaces outside the U.S., but that is not to say that U.S. insurers could not learn a lot from this product.[1] The following, although by no means exhaustive, are some of the more notable features and attributes of the policy form.[2]

First, is its drafting simplicity and brevity (8 pages), positive attributes I might add that are disappointingly missing from the aforementioned Executive Edge.

Second, although it is marketed as an “all risk cover”, the policy does contain an exclusions section with six enumerated exclusions plus additional exclusions contained, as is typical of most D&O policies, in the Loss definition.

Third, and perhaps the most remarkable and innovative feature, Darcstar™ takes disputes over permissible indemnification for the most part out of the coverage analysis. This is done with a single insuring clause, with multiple subparts, but all triggered solely by a claim against an insured person without regard to corporate indemnification. Further, the insurer waives any right to subrogate against the company or any subsidiary as a result of any failure of these entities to lawfully indemnify the insured persons. This latter provision is particularly unusual, and one has to wonder whether this could reasonably be a feature in a U.S. policy where the scope of both permissible and mandatory indemnification is very broad in virtually all states.

Fourth, the policy is written without use of deductibles or retentions, except in the case of a securities claim. This securities coverage is provided to the entity by way of an extension clause in the policy, and is the sole extent of entity coverage granted. In my opinion, deductible or retentions, even relatively large ones, do not give the insureds the requisite “skin in the game” that insurers often seek. Only meaningful coinsurance percentages can accomplish that. Darcstar™ simplifies the issue by dispensing with these amounts and presumably subsuming the resultant earlier exposure points in the premium.

Fifth, although many U.S. insurers might be somewhat loathe to offer these, Darcstar™ provides that the insurer must state its coverage position within thirty days of receipt of the claim notice and indicate whether it consents to defense costs within seven days.

Sixth, the policy’s loss mitigation extension offers a sublimit for what is somewhat similar to U.S. E&O policies for financial institutions with a “costs of correction” cover for trade errors.

Seventh, the policy’s approach to inquiries and investigations is somewhat unique and straightforward. The coverage for these events - whether external or internal; formal or informal – is rather broad. Unlike most U.S. policy forms, investigations and inquiries do not constitute a Claim, and coverage can be triggered for these events as soon as there is the potential for a claim or “notifiable circumstances.” As such, the trigger of their coverage would be in the event that the company fails to pay them on behalf of the insured person due to a conflict in interest or company financial insolvency. Otherwise, these expenses are expected to be covered by the company without recourse to the insurance policy.

Finally, there is one other feature that insureds may not necessarily find favorable. Darcstar™ provides for mandatory arbitration of coverage disputes, in the event of a failure of settlement negotiations or mediation, applying the laws of England and Wales in an arbitral proceeding administered by ARIAS (UK). One would imagine, however, that this clause might be amended to accommodate different choice of law.

[1] Darcstar™ is marketed as a product of Willis FINEX Global in association with the insurers, Allianz, Beazley, Liberty Mutual, Munich Re, QBE and XL.

[2] Darcstar™ contains no explicit territorial limitations, but it does not appear to be a form intended for policyholders incorporated in the U.S. or with publicly-traded U.S. subsidiaries.  By way of example, the insured person definition provides for a degree of outside directorship extension, except with respect to a publicly-traded subsidiary in the U.S. Nonetheless, the form is otherwise quite suitable for companies based outside the U.S. but having U.S. exposures by virtue of a subsidiary company.