subject: Hedge Fund E&O Insurance -- If You Don't Get Anything Else [print this page] Hedge Fund E&O Insurance -- If You Don't Get Anything Else
There's a lot to be said for being prepared. Making sure that you've dotted your "i"s and crossed your "t"s can save you from a world of trouble in many things, including hedge fund management. However, what many hedge fund managers and companies are learning now -- to their detriment -- is that simply being prepared and doing a good job is no longer enough to survive in the post-recessional economy. It's not fair, but that's the way it is. Clients are keeping eagle-eyes on their funds, helped by lawyers who have everything to gain from you making a single misstep, or even the appearance of a misstep. Add into the mix the new incredibly detailed standards of scrutiny from regulatory bodies, and it is virtually impossible for any hedge fund manager to escape from being sued. The question is no longer an "if," but a "when."
This is why it is absolutely essential for whatever hedge fund insurance policy you buy to have hedge fund E&O insurance coverage. Though E&O was pretty simple in the past -- as long as you weren't actively attempting to make an error and an omission, you were usually OK -- that is simply no longer the case. Hedge fund managers are being brought into court on a daily basis because of errors and omissions that they had no idea they were making, or were even responsible for.
Take, for example, the case of negligence. Several hedge fund managers have been sued under New York law recently simply for "carelessness in imparting words..." as constituting a case of negligent misrepresentation. As long as there is a former relationship between the plaintiff and the defendant, in this case the hedge fund manager, the manager is at risk, and liable for negligence. In these cases, the hedge fund management company could be held responsible for paying all expenses out-of-pocket if they did not have the appropriate hedge fund E&O insurance policy.
This is only one of many situations where a hedge fund management company could have been saved an enormous amount of time, energy, and trouble by simply having the right insurance policy. It's easy to view hedge fund insurance companies as fear-mongering, but when it comes down to it, you really can't have too much coverage in this new, post-recessional economy. However, if you are, for some reason or another, forced to choose a limited policy, then the one thing that you should be sure to get is hedge fund E&O insurance. With all the new legal precedents being set regarding errors and omissions, hedge fund managers are basically flying blind when it comes to E&O liability. So do the smart thing, and make sure you have a good E&O policy. If you can't avoid all liability, you can at least be prepared to deal with any suits that may come up.
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