CEO Musk Replaces Tesla’s D&O Policy with ‘Personal Coverage’

Many organisations are implicitly covering their cyber risk themselves rather than take out insurance. Contrast with this example of a company (underwritten by a wealthy individual) explicitly offering to cover liabilities for a different set of risks. I’m not sure if this represents ‘coercive control’ of the board by Musk…

[…] Tesla determined not to renew its directors and officers liability insurance policy for the 2019-2020 year due to disproportionately high premiums quoted by insurance companies. Instead, Elon Musk agreed with Tesla to personally provide coverage substantially equivalent to such a policy for a one-year period, and the other members of the Board are third-party beneficiaries thereof. The Board concluded that because such arrangement is governed by a binding agreement with Tesla as to which Mr. Musk does not have unilateral discretion to perform, and is intended to replace an ordinary course insurance policy, it would not impair the independent judgment of the other members of the Board.

Liability insurance expert Kevin LaCroix, writing in his D&O Diary, said Musk’s arrangement, while unusual, is “not unprecedented” in his experience. However, he warned, it could be a problem for the other board members to rely on Musk for coverage.

Elon Musk

“His agreement to provide coverage to the directors is dependent on his financial ability to honor his commitment,” wrote LaCroix, an attorney and executive vice president at RT ProExec, a division of R-T Specialty. “However, the directors’ need for coverage could arise in a set of circumstances that could itself undermine Musk’s ability to honor his commitment.’”

According to LaCroix, Tesla’s directors and officers could find they need Musk’s insurance at a time when both Musk and Tesla are facing a crisis.

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Original article here