| Directors and Officers Liability (Part 2) | |||
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Exclusions Most exclusions are contained in the policy, while a few are added by endorsement. Most of the exclusions apply to both coverage parts, though sometimes exclusions are applicable only to the Directors and Officers Liability (Coverage A). Some exclusions are modifiable or removable under certain circumstances. Pending and prior litigation exclusion Most policies exclude pending and prior litigation, though this may be negotiable back to a specific date. This should not be a concern if the insured remains with its current carrier, as coverage applies from the time that the carrier started writing this insurance. Illegal personal profit or advantage exclusion Most policies exclude illegal personal profit or advantage. Even if illegal personal profit or advantage is covered, it may only be applicable to the Directors and Officers Liability coverage. Illegal remuneration exclusion Illegal remuneration is excluded only on the Directors and Officers Liability coverage. Criminal or deliberate fraudulent acts exclusion As for criminal or deliberate fraudulent acts, most policies have either an exclusion for both separately or written into one exclusion. Insider trading exclusion Some D&O Liability policies contain a separate exclusion for insider trading, but this is often already covered because most policies contain the criminal act and/or personal profit exclusion. Willful violation of statute exclusion Many policies do not contain the exclusion of willful violation of statute, so you should determine with the client whether or not this is something that needs to be added to the policy. Insured vs. Insured exclusion The "Insured vs. Insured" exclusion is found in virtually all D&O Liability policies. This is sometimes referred to as the Bank of America exclusion, since that loss resulting from that a high-profile Bank of America case was the initial reason for the insertion of this exclusion. The Insured vs. Insured exclusion is sometimes modified to include coverage for wrongful termination claims by a former officer or as a separate coverage specifically provided with an additional premium charge. Wrongful termination exclusion While we're on the topic of wrongful termination, it should be noted that although wrongful termination coverage is often included in a D&O Liability policy, the Insured vs. Insured exclusion needs to be clarified. The exclusion is occasionally applicable to previous directors. Making sure that the wrongful termination exclusion is included in the policy is extremely important as it is one of the fastest growing of all claims. It accounts for approximately 10% of all claims filed against directors and officers! Note also that coverage can be purchased separately, and usually on a much broader basis, under Employment Practices Liability policies. Pollution/nuclear exclusion Now we turn to an issue that has high risk of both loss and media exposure: pollution and nuclear damage. In virtually all policies, bodily injury and property damage claims, as well as libel and slander claims, resulting from pollution or nuclear energy problems are excluded. Concerning the pollution exclusion, virtually all policies exclude pollution damages, as well as clean up costs. Most policies also contain a separate penalties and fines exclusion. Some policies grant an exception for independent shareholder's derivative suits. Most policies exclude nuclear energy liability by endorsement. As with the pollution exclusion, some policies contain an exception for independent shareholder's derivative claims. Regulatory agency exclusion The regulatory agency exclusion addresses problems arising from regulatory agencies alleging mismanagement after takeover of a failed institution, such as a bank. Negotiate with your client for removal of this exclusion if writing coverage for an insured other than a financial institution. Greenmail/hostile takeover exclusion The greenmail exclusion comes into play when the insured company buys its own stock to resist a takeover attempt. Some insurers modify this exclusion to apply only if the company or board has not obtained a written opinion from independent legal counsel that such resistive action is a lawful exercise of the board's business judgment and an opinion from an independent banking firm that the price of such acquisition of securities is inadequate, and that any financial transaction approved by the board that is resistive of such acquisition is fair to the company and its shareholders. The hostile takeover exclusion addresses claims aimed at the increased debt load of the company caused by attempting to prevent a takeover. Shareholders may claim financial harm due to the reduced assets and possible share value reduction brought on by such attempts. Many policies do not contain the hostile takeover exclusion, as many clients are willing to remove or modify it in the same manner as the greenmail exclusion. Management buyout exclusion The management buyout exclusion concerns stockholders claiming financial injury due to the sale of the company or substantial assets, and attributing the loss to decisions made by the directors or officers. Many policies do not contain this exclusion. If this exclusion is added to the policy, try to negotiate an exception in circumstances when stock is purchased at or above the prevailing market price, based on independent evaluation by an investment banking organization. ERISA exclusion The ERISA exclusion refers to any violation of responsibilities imposed by the ERISA act or amendments. This coverage can be purchased through separate fiduciary liability insurance. Failure to purchase and maintain insurance exclusion Failure to purchase and maintain insurance--virtually all policies contain this exclusion. Try to negotiate with the client to take this exclusion out of the policy if your client is a non-profit company. Claims brought by receiver of company exclusion The "claims brought by receiver of company" exclusion excludes claims of mismanagement brought by a receiver other than a regulatory agency. Many policies do not contain this exclusion. |
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Not only are policy forms, clauses, rules and court decisions constantly changing, but forms vary from company to company and state to state. This material is intended as a general guideline and might not apply to a specific situation. The authors, LunchTimeCE, Inc., CEfreedom, and Insurance Skills Center, and any organization for whom this course is administered will have neither liability nor responsibility to any person or entity with respect to any loss or damage alleged to be caused directly or indirectly as a result of information contained in this course.
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