31 January 2022ILS

Delaware to permit D&O captive cover

Delaware’s state legislature has passed a bill to allow companies to use captives for directors’ and officers’ liability insurance.

The Delaware General Assembly’s Senate Bill No.23 amends existing state corporation laws limiting companies to buying traditional D&O insurance policies. The bill, proposed by the Delaware Bar Association’s Corporate Law Council, explicitly authorises the use of captives.

The existing Delaware General Corporation Law already gave corporations “power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation… against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such.”

The bill adds to this: “For purposes of this subsection, insurance shall include any insurance provided directly or indirectly (including pursuant to any fronting or reinsurance arrangement) by or through a captive insurance company organised and licensed in compliance with the laws of any jurisdiction, including any captive insurance company licensed under Chapter 69 of Title 18 of the Delaware Code…”

Corporations will be free to use captives “organised and licensed in compliance with laws of any jurisdiction”, meaning they’re not restricted to Delaware domiciled captives.

“This is the result of a multi-year effort led by a coalition of innovative and progressive risk managers at some of the largest and most well-known public companies, with support from external counsel and in partnership with DE State Bar Association,” wrote Chris Heck, director of risk management at Gilead Sciences in an online update. “I was happy to be a part of the core team that made this possible.”

According to the Delaware Captive Insurance Association, Delaware is among the fastest-growing captive domiciles in the world, with over 550 active captives.