Elon Musk's Tesla D&O coverage runs out in less than a week – what happens next?

Electric car company's brazen CEO offered to pay for his company's insurance, but time is running out on the indemnification agreement

Elon Musk's Tesla D&O coverage runs out in less than a week – what happens next?

Professional Risks

By Lyle Adriano

Electric car manufacturer Tesla made insurance headlines when CEO Elon Musk said he would pay for his company’s directors and officers liability insurance (D&O) – but recent details have emerged saying this insurance agreement ends in less than a week.

Tesla originally announced that Musk would provide the company D&O insurance in a regulatory filing in April, revealing in the same filing that it chose not to renew its previous D&O insurance policy due to “disproportionately high premiums quoted by insurance companies.”

The terms of Tesla’s indemnification agreement with Musk were not disclosed when it was originally announced, but an article on investor portal Seeking Alpha has revealed some details about the agreement, such as:

  • The agreement was effective June 23, 2020, and it expires September 22, 2020.
  • The parties covered are all directors and officers who are contractually indemnified by Tesla.
  • Tesla had paid Musk a one-time fee of $972,361 for assuming the defense and indemnity obligations.
  • Under the agreement, Musk is obligated to make payments only if and to the extent that Tesla is unable to do so.
  • Musk’s obligations are limited to claims made during the three-month term, or claims later made that arise out of events occurring within the term.
  • Musk’s aggregate maximum liability is $100 million.
  • By September 22, 2020, Tesla must obtain a “a binding quote proposal” for D&O policy “with an aggregate ‘Side A’ coverage limit of $100,000,000 from a reputable insurance broker with nationwide standing.
  • If the premium in the binding quote proposal (multiplied by one-eighth) is greater than the one-time fee paid by Tesla to Musk, Tesla must pay the difference to Musk.

But it would appear that Tesla may soon find an insurer willing to bind insurance; sources told Insurance Insider that the Marsh JLT Specialty-brokered Tesla policy is currently circulating in the London market. Notably, this policy has an exclusion in place for CEO Elon Musk.

Sources also informed the publication that Musk was “effectively uninsurable,” thanks to his costly Twitter stunts. These stunts included boasting on social media about a potential private takeover of Tesla – which led to a Securities and Exchange Commission suit – and Musk’s tirade against a British recreational cave diver who offered to help rescue a trapped junior football team in Thailand.

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