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Mitigating Bankruptcy-Related Risks: D&O Solutions for Distressed Energy Companies

Solvency risk in the energy sector is nearing crisis levels. Bankruptcies, and the approach leading up to them, create heightened concerns for directors and officers.
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Solvency risk in the energy sector is nearing crisis levels. Through the first nine months of 2019, 50 US-based oil  and gas companies filed for Chapter 11 or Chapter 7 bankruptcy protections, totaling over $20 billion in debt. Bankruptcies, and the approach leading up to them, tend to create heightened concerns for directors and officers.

With its significant experience handling insolvency risks and developing creative insurance solutions, Marsh is well positioned to assist companies in distress. Over the last 10 years, Marsh’s FINPRO Practice has successfully negotiated debtor-in-possession and runoff directors and officers (D&O) liability coverage for more than 50 US companies holding more than $900 billion in debt.

Potential D&O Coverage Pitfalls

The escalation of risk in the energy sector requires thoughtful solutions. Lending resources are extremely limited and bankruptcies are on the rise. The design and coverage breadth of D&O insurance is more important now than ever before. With many kinds of D&O polices available, choosing the right one can mitigate the personal financial exposure of directors and officers during a bankruptcy.

The following pitfalls should be avoided when considering D&O coverage in connection with an insolvency or bankruptcy situation:

  • Endorsements that restrict coverage, including creditors’ exclusions or reduced coverage in the event of credit downgrades.
  • Change of control wording that may inadvertently trigger runoff coverage.
  • Delayed quotes, creating limited options or subpar terms and pricing.
  • Deficiencies in critical areas, such as non-rescission, severability, or insured versus insured exclusion carve backs.
  • Inadequate D&O limits.