As with all types of insurance, Directors & Officers policies can include a number of exclusions. Whilst this type of insurance is designed to provide a broad coverage to protect businesses, their directors and officers and their assets against liability claims… there are some risks that are commonly excluded for types of losses that insurers would consider unfavourable.
We’ve put together a list of various forms of D&O policy exclusions that exist in today’s marketplace, to help you understand potential exclusions and avoid being caught out.
D&O does not generally cover losses that can be covered by other types of insurance. For example, any professional services provided by an organisation, such as legal services provided by a law firm, are generally not covered by D&O as Professional Indemnity insurance is designed for this purpose.
Similarly, claims relating to personal injury would usually be covered by general liability or workers compensation insurances over D&O.
These exclusions are in place so that underwriters can accurately measure the potential exposures of D&O liability, and to try and eliminate the chances of double insurance claims.
Naturally, insurers are prohibited from covering criminal or fraudulent conduct as to not undermine the law. As such, illegal or dishonest acts by any individual that result in profit or remuneration, such as insider trading or embezzlement, are excluded from D&O policies.
Of course, D&O insurance is designed to protect policyholders from unforseen risks, and therefore insurers will not include coverage for known claims or circumstances that will undoubtedly occur.
In other words, claims and circumstances which directors and officers are aware of prior to policy commencement will not be covered by D&O insurance… they should have been notified and covered during a past policy periods, or wont be covered at all.
Prior or pending litigation exclusions are designed to void coverage for claims that have commenced before the prior or pending litigation date. This date is specified in the policy schedule and usually represents the initiation date of D&O coverage.
The prior or pending date is put in place specifically to exclude cover for claims that have already commenced and should therefore be covered under a prior policy.
D&O policies along with many other insurances classes, will often exclude losses or include clauses for losses that are deemed ‘catastrophic hazards’ to an insurer – where they could not realistically cover the cost of payouts without destroying their own financial position.
Examples often include losses resulting from war, terrorism and instances of catastrophic environmental damage.
D&O Insurance generally excludes claims brought against directors and officers by others insured under the same policy.
Insured V Insured exclusions removes an insurer’s backing in order to discourage infighting among senior management and remove incentive for collusive behaviour. This includes situations where a director or officer claims against themself to recover losses resulting from an organisations poor performance.
Working to a similar function as Insured vs. Insured exclusions by removing incentive for collusion and infighting – major shareholders exclusions can be made for any claims by someone who owns a major percentage of a company… typically 10-15%.
Insurers can ultimately outline specific risks or circumstances they are not willing provide coverage for if identified and accepted during the underwriting process.
These specific exclusions are applied on a case-by-case basis to exclude coverage for specific entities, individuals, events, activities or jurisdictions – and result in coverage to an organisation being offered on restricted basis.
As you can see, despite the broad coverage offered by D&O insurance policies, there are a number of circumstances where exclusions can apply… with these exclusions generally serving for the purpose of discouraging dishonest or fraudulent insurance claim behaviour.
For further information or enquiries regarding D&O insurance policy exclusions, talk to the professionals at Sydney Insurance Brokers today.