Directors & Officers Liability Insurance: Part Three
Limiting The Impact of the Insured v. Insured Exclusion
Of course without the Insured v. Insured exclusion, a company could use risky business practices with a safety net. of the D&O coverage and make the insurance company pay for the negligent acts of management. No carrier would continue in this line of business for their losses would be too great. Keeping that in mind there are ways to, to limit the Insured v. Insured exclusion's.
I v. I exclusion will not apply to claims against directors and officers which are brought by liquidators, bankruptcy, trustees, receivers, examiners, creditor committees or any other parties which may be deemed a successor-in-interest to the insured entity. The best course of action is to have an explicit exception in the I v. I exclusion to make it clear that coverage will apply for Insureds when a successor-in-interest files a claim against them.
Carriers do not want to pay whenever company executives have a disagreement, but many times they will agree to provide coverage for claims by former insureds that have been out of their position with the company for a stated period, usually three years or more. It is important to note that some carriers will restrict this exception to just former board members, while others will allow it to apply to all former insured.
- Employment Practices Claims
Insurers will sometimes provide an Insured v. Insured carve-back to create coverage under a D&O policy for employment practices claims brought by an employee (or former employee) of the insured company against another insured person. This carve-back will not cover the corporate entity. This exception to the I v. I exclusion will be considered by the carrier in light of any separate Employment Practices Liability (EPL) insurance which may be available to the insured company. It is recommended to purchase EPL coverage so not to dilute your D&O policy with employment claims.
In certain countries the law require directors and officers to set right corporate wrongs by bringing suit against the company and/or their colleagues officers and directors. In such jurisdictions, I v. I exclusions are generally not allowed. If you have operations in and of those foreign jurisdictions it is important to take into account the law of this situation in each of those jurisdictions. You may get a blanket exception to the I v. I exclusion on your policy for claims arising from foreign operations. At the very least, the carrier should be requested to underwrite each of the foreign subsidiaries and be asked to provide the necessary coverage in each jurisdiction.
- Cross-Claims and Third-Party Claims
This enhancement is directed at a relatively rare circumstance sometimes called a "redirection claim". An plaintiff may not be able to connect every outcome about which they are aggrieved with the person committing the wrongful act and, therefore, it is possible for a plaintiff to file suit against one insured person for the actions of a different insured person. With this carve-back, coverage is allowed to go forward since the original claim brought forward is merely being "redirected" towards the proper party.
- Fund Directors Suing the Investment Advisor under an Investment Management Insurance ("IMI") Policy
Another rare circumstance, but does happen. IMI policies are unique in that both the investment advisor and the funds that they advise are covered under one policy for their D&O exposure, even though they are each separate legal entities. Thus, I v. I exclusion would apply to directors of a fund sing the directors of the advisor. A carve-back to the I v. I exclusion which some carriers will grant allows fund directors to sue the advisor and its directors if the fund directors have obtained an opinion from independent legal counsel stating that the fund directors will subject themselves and/or the funds to liability if they do not bring a suit against the advisor and/or its directors. While rare, this is a valuable carve-back to have with an IMI policy.
If the carrier can not modify the D&O policy's I v. I. exclusion to meet the insureds' needs, another alternative is to purchase a Side C DIC policy. That type of D&O policy often does not have an I v. I exclusion and is able to drop down from an excess position and fill that coverage gap.
NOTE: SOME OF THESE FEATURES WILL BE BUILT-IN TO CERTAIN POLICIES. BUT YOUR AGENT MAY BE ABLE TO ENHANCE YOUR COVERAGE EVEN FURTHER.
