In turbulent economic times, the importance of a well designed management and professional liability insurance program, also referred to as D&O/E&O, becomes clear. Market volatility creates greater risk for fund management and administration errors that lead to financial losses. Poor overall market performance affects virtually every firm’s investment results, creating litigation opportunities for disgruntled investors at the same time that the firm’s resources to defend such claims are stretched thin.

Further, hedge funds are now finding themselves the subject of closer scrutiny by the Securities and Exchanges Commission (SEC), Department of Justice (DOJ), and other regulatory agencies as a result of recent scandals like Madoff and Galleon and the recent insider trading allegations made against a number of hedge funds and expert network firms.

The regulatory environment is currently in a state of uncertainty due to new regulatory constraints imposed by the Dodd-Frank Act. Enhanced SEC disclosure and reporting required by Dodd Frank could mean heightened scrutiny from regulators as well as investors. In this environment, it has never been more important for organizations to have a skilled and experienced intermediary working to ensure that the most cost effective D&O/E&O insurance program available is designed, negotiated and placed on their behalf.

Policies typically purchased by alternative investment funds and hedge funds contain the following coverages:

• Management Liability/Directors and Officers Coverage — Protects hedge fund executives against claims brought by investors and other plaintiffs. (Many funds are now purchasing D&O limits dedicated solely to the individuals, providing personal asset protection in cases where the fund can not indemnify.)
• Professional Liability/ Errors and Omissions Coverage — Protects the fund(s) and its executives and employees for claims arising out of the rendering of professional services to the insured fund(s)
• General Partnership Coverage — Protects the general partner investment advisor of an insured fund against potential liabilities Employment Practices Liability Coverage — Protects the investment company, managers, and employees against employment related suits, such as claims of harassment, discrimination, and wrongful termination
• Fiduciary Liability Coverage — Protects the investment company for claims in connection with the administration of benefit and welfare plans that it provides to its own employees. Coverage can also be provided for investor suits brought by ERISA plans
• General Liability Coverage — Protects the investment company for general liabilities such as bodily injury, property damage, and workers’ compensation
• Private Client Personal Liability Coverage — Protects high net worth individuals and their insured personal property (autos, collections, fine art, jewelry, homes, investment properties, and recreation vehicles)
• Network/Cyber Liability — Covers liabilities caused by lost private client data and breach of network loss
• Cost of Corrections Coverage
• Fidelity (Crime) Insurance — Employee and third party theft of firm’s assets
• Rep & Warranties (M&A) Contracts
• Surety (Bonding)
• Unauthorized Trading
• Liability Associated with FASB FIN48 tax disclosures
• Key Man Life Insurance