Insurance can often provide another means of addressing risk, including compliance risk. It is by no means a substitute for proper compliance, but it can add another factor to the analysis. One type of insurance related to corporate governance is Directors and Officers Liability Insurance, often referred to as D and O. It is liability coverage that generally comes into play if the directors or officers of a company are alleged to have failed to exercise their fiduciary duty, or enriched themselves at the expense of the company like misusing corporate assets, or failed to properly supervise company management in the exercise of their duties. It can also cover liabilities of a company, not just individuals. While insurance may not cover fines and penalties, it can pay for the costs of defense and related expenses. It rarely would cover illegal actions that are determined to be intentional, such as fraud or theft. Instead, insurance tends to cover matters that fall into the gray area. Coverage has gotten much broader than it had been in the past in both the scope of the actions that it will protect, as well as when it kicks in. For example, in the past, you had to have a lawsuit filed before a person or a company could obtain coverage. Today, insurance policies include coverage where a formal lawsuit has not yet been filed. It can include coverage of things like administrative proceedings, investigations, or even simple inquiries. It can also cover the advancement of costs associated with the legal defense, again, before a lawsuit's even initiated. There's also something called transactional risk coverage insurance. One type of this insurance involves representations and warranties. Insurance that can protect a party involved in a transaction from losses that arise even if there is no intentional or unknown breach of warranty. Another type of insurance relates to potential tax liabilities. If a tax position that was taken in the past turns out to be incorrect, then the policy might pay for any excess tax burden that's due. Now, this can come into play for example if you're buying a company that took a certain position on how much in taxes that they were supposed to pay in the past, and then years later, when you own the company, the IRS determines that the company owes a lot more. So long as you have a legitimate tax opinion to support your position, the insurance policy could pay that new tax assessment. Another type of risk coverage called contingent liability insurance can cover potential exposure to a bunch of different risks. There's litigation exposure, environmental exposure, employment dispute exposure, and many other types of exposure. Companies concerned about privacy and data breaches, for example, that involves sensitive customer information can buy insurance to cover that. Companies worried about sanctions from the Environmental Protection Agency can actually buy environmental impairment liability insurance which covers claims arising from certain pollution releases. Employers who fear the cost of defending overtime claims under the Fair Labor Standards Act can buy wage and hour insurance for example. These insurance products protect companies against the cost that compliance failures might impose on their businesses. There is now cybersecurity insurance coverage. This type of insurance is designed to provide coverage for cyber incidents, such as hacking, data breaches, business interruptions, and damage to a network as result of those incidents. It's expanded to include more than just financial coverage for a cyber incident. In addition to legal fees and expenses, the coverage can now include access to functional experts to help deal with the cyber incident. Things like any costs associated with customer notification, identity theft protections, the retrieval of data, and much more. In fact, it's safe to say that you can probably insure against almost any kind of potential risk and you can use that as a certain type of compliance tool. In the insurance industry, there's a saying, "There's no such thing as bad risk, just underpriced risk." Insurance can't necessarily make a bad deal good and eliminate compliance risk, but it can sometimes make a bad deal better if you can underwrite an unknown occurrence.
