Much has been written about the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) since its passage in July 2010, including conclusions and speculation with regard to its impact on D&O insurers.

The devil is usually in the details when it comes to assessing any legislation, and the devil here lies in the fact that much of the rulemaking necessary to implement Dodd-Frank has yet to be promulgated. Adding to the uncertainty is the fact that all of the viable Republican presidential candidates are opposed to this legislation, in whole or in substantial part. A Republican presidency, perhaps coupled with a Republican-controlled House and/or Senate, may well lead to repeal or amendatory legislation or, at the very least, a different course to the rulemaking activity.

None of the major D&O policy forms on the market today specifically address Dodd-Frank exposures, at least not in the form itself. The primary impact of Dodd-Frank lies in the expected increase in covered claim activity due to generous “bounty” payments to whistleblowers and enhanced ability of the SEC to pursue executive compensation “clawbacks”. Unlike similar provisions under Sarbanes-Oxley, Dodd-Frank expands the compensation clawback beyond just the CEO and CFO to all current or former executive officers. This will likely bring a few other officer (but not independent director) positions into the mix, including the General Counsel, Chief Operating Officer and other duly appointed executives.

Notwithstanding future rulemaking or possible amendatory legislation if there is a change in the current Administration, insureds and insurers may see increased SEC investigatory activity pursuant to Dodd-Frank.

Coverage for clawback amounts should be non-existent because of the personal profit exclusion and the fact that disgorgement of such compensation should be uninsurable as a matter of law. Dependent upon policy language, however, there may be defense costs coverage for these clawback claims. Some commentators have expressed concern that whistleblower claims facilitated by former officers or employees may potentially trigger an Insured vs. Insured exclusion. That policyholder concern may not be well-taken in many instances where there is a “carveout” to the exclusion that addresses these types of situations. Moreover, many of the newer policy forms now contain a simple “insured entity vs. insured” exclusion that should not be triggered by a whistleblower claim in most instances.

In summary, election year politics, particularly if there is an Administration change and significant changes in the make-up of the House and Senate resulting from the November 2012 elections, may greatly affect the future direction of Dodd-Frank reforms. Stay tuned.