HOW BROAD IS THE DISCIPLINARY PROCEEDING COVERAGE GRANT UNDER YOUR BD-RIA PROFESSIONAL LIABILITY INSURANCE POLICY?

Recently, several broker-dealers were served with requests for information from a couple of State Securities Divisions concerning the sale of specific private placements under investigation by the SEC for their delay in filing their financial reports.

While a few broker-dealers retained independent counsel to assist them in responding to the inquiries, many relied on their internal professionals to respond.  For those broker-dealers who retained outside counsel, did their Professional Liability insurance policies pay the attorneys’ fees?

Most broker-dealer Professional Liability insurance policies contain an additional grant of coverage for “Disciplinary Proceedings” and/or “Regulatory Investigations”.  This grant of coverage is typically subject to a sub-limit of liability, no deductible and only applies to defense expenses.  This coverage grant is intended to encourage broker-dealers to retain counsel when responding to disciplinary matters and/or regulatory investigations.    

Not all Professional Liability policies contain this additional coverage grant and if only “Disciplinary Proceeding” coverage is referenced in your policy, the carrier may not extend coverage for State or Federal inquiries.      It may be worth a call to your insurance broker to inquire about the scope of coverage under your Professional Liability insurance policy.

 Lilian Morvay, JD, is available to review your Professional Liability insurance policy and to provide you with guidance with respect to this matter.