Directors & Officers (D&O) Insurance provides critical coverage to protect directors, officers, and sometimes the company itself from lawsuits arising due to alleged wrongful acts in their managerial roles. However, like all insurance policies, D&O insurance has its limitations, and there are specific exclusions that policyholders should be aware of. It’s important to note that the exact exclusions can vary between policies and insurance providers, but the following list provides a general overview of what is typically excluded:
D&O policies are not meant to cover claims arising from bodily injury or property damage. These claims would typically be covered under general liability or workers’ compensation policies.
If a director or officer is proven to have acted fraudulently or dishonestly, any related claims are often excluded. However, defense costs might be covered up to the point where the wrongful act is determined to be fraudulent or dishonest.
Claims arising from a director or officer obtaining an illegal personal profit or advantage are typically excluded.
D&O policies might exclude claims stemming from wrongful acts that occurred before a specified retroactive date, especially if the insured was aware of the wrongful act at the time the policy was taken out.
Claims relating to litigations or facts that were pending or existed before the policy inception date are often excluded.
Many D&O policies exclude claims made by one insured party against another, such as a director suing a fellow director. However, there are exceptions, and “insured vs. insured” exclusions often have carve-backs for certain scenarios, like shareholder derivative suits.
If the insured fails to notify the insurer of a claim or potential claim within the time frame specified by the policy, coverage for that claim may be denied.
Claims arising from the company’s contractual obligations are typically excluded, unless the insured would have had a personal liability in the absence of the contract.
Some policies exclude claims arising from specific statutes or regulations, especially those related to securities.
D&O policies usually exclude claims arising from the rendering or failure to render professional services, which would typically be covered under professional liability or errors and omissions (E&O) insurance.
Claims arising from environmental damage or pollution might be excluded, although defense costs for related claims might be covered.
D&O policies might exclude claims from specific entities, like major shareholders or subsidiaries.
While defense costs might be covered, fines, penalties, and multiplied damages resulting from punitive measures might be excluded.
For private companies that transition to public during the policy period, securities claims related to the newly public status may be excluded, unless there’s a specific endorsement or an additional policy purchased.
While D&O insurance provides essential protection for directors and officers, understanding its exclusions is crucial to ensure there are no coverage gaps. Companies should work closely with their insurance brokers or legal counsel to review policy wording and tailor coverage to their specific needs. Regular policy reviews, especially after significant company events or changes, can also help maintain comprehensive protection.
