Tesla Drops D&O Cover, Says Elon Musk Will Pay (Insurance Business)

Tesla Drops D&O Cover, Says Elon Musk Will Pay

  Friday, May 1st, 2020 Source: Insurance Business

In an attempt to avoid paying high premiums, electric automobile manufacturer Tesla announced that it would forgo directors and officers liability insurance (D&O) this year, opting to rely on CEO Elon Musk to pay for legal defense.

The company revealed the decision in a regulatory filing this week. “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,” the company said in its filing.

“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.”

Aside from the announcement to drop D&O coverage, Tesla also gave assurances that the decision would not impair “the independent judgment of the other members of the board” who work with Musk. Some experts have offered their thoughts on the arrangement.

“Having the CEO provide D&O personally for the directors is highly problematic because it is meant to protect them from decisions they make about him, among other things,” Charles Elson, professor of corporate governance at the University of Delaware, told CNBC. “Usually D&O gives them an ability to make decisions without fear of personal liability when they act appropriately.” Elson added that he thinks that it is a “bad idea.”

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