D&O Insurance Policies Primer
"Few companies or directors/officers review the precise wordings of their policies (whether they be D&O or products liability or property). By the time lawyers are involved in the claims side of things it may be too late. By investing the time upfront in scrutinizing the wording carefully, one can be best assured that the protection that is intended to be obtained through the purchase of a policy will be there when needed."
This comprehensive post from Insurance Scrawl explains the basics as follows:
"In general, insurance policies for directors and officers provide coverage for defense costs and liability payments (both judgments and settlements) for covered wrongful acts if a claim is made against the insured during the policy period. This is often referred to as “Side A” coverage. In addition, most policies afford coverage for the company’s own expenses incurred in indemnifying covered persons pursuant to the corporate indemnity in the company by-laws. This is often referred to as “Side B” coverage. Usually, there is a deductible that applies to claims within Side B coverage, and D&O policies typically seek to require that the company advance defense costs and make payment for any judgment or settlement before the insurance company will pay.
Coverage is triggered by the assertion of a claim against covered persons or the company during the policy period, but all claims relating to a particular factual circumstance (i) will be subject to a single per-claim policy limit and (ii) regardless when asserted, will be assigned to the policy period in which the first of any series of such claims was made. Typically, the covered persons and the company share a single policy limit for both the Side A and Side B coverage (defense and indemnity combined), though there here is one Side A-only policy and one Side B-only policy."
As to scrutinizing policy language, the post highlights the following sections as meriting close review:
Prior and Pending Exclusion.
Insured versus Insured Exclusion.
Pollution Exclusion.
Accounting of Profits.
Deliberate Fraud Exclusion.
Personal Profit Exclusion.
Presumptive Indemnification.
Settlement.
Trigger.
Defense and Settlement.
Allocation of Loss.
Underwriting Representations.
Severability.
Claims Definition.
Defense Costs.
Interrelated Wrongful Acts.
Definition of Loss.
Financial Impairment.
Order of Payments.
