Director & Officer Liability Insurance Coverage and D&O Liability Insurance Coverages in Industry

D&O Liability Insurance Coverages in Industry

Director & Officer Liability Insurance Coverage

At its most basic, D&O liability insurance covers directors and officers from liability arising from actions connected to their corporate positions. Due to general expansion in the industry, market pressures and the industry’s responses to the development of case law, D&O insurance has expanded beyond its original and basic coverage. Thus, a single policy now may provide multiple and varied options by standard form or endorsement.

Coverages in Directors and Officers Insurance

The individual director and officer liability insurance coverages discussed below typically are subject to distinct terms, conditions and deductibles, and even may be subject to distinct policy limits or sublimits. However, some common threads run through each coverage offered in a D&O policy. For example, D&O insuring agreements generally specify that coverage is limited to claims first made during the policy period. In addition, the insurer typically does not have a duty to defend but is required to cover the costs of the insured’s defense.

Directors and Officers Liability Insuring Agreements A in D&O Policies.

Although each policy will employ its own language, Insuring Agreement A, often referred to as “A-Side Coverage,” typically provides coverage directly to the directors and officers for loss - including defense costs - resulting from claims made against them for their wrongful acts. A-Side Coverage applies where the corporation does not indemnify its directors and officers. A corporation may not indemnify its directors or officers because it either (1) is prohibited by law from doing so, (2) is permitted to do so by law and the company’s bylaws but chooses not to do so, or (3) is financially incapable of doing so, due to bankruptcy, liquidation, or lack of funds. The laws regarding indemnification differ from jurisdiction to jurisdiction.

D&O insuring agreement A additionally may specify that directors and officers liability insurance coverage is limited to those claims connected to an insured’s capacity as an insured director or officer of the company in business industry. This issue of capacity recurs throughout D&O coverage analysis. The limiting language may appear in the insuring clause, in the definitions of “wrongful act” or “insured” found elsewhere in the policy, or in all three clauses. Although a claim sometimes implicates an insured in a single and clear capacity, a D&O liability insurance claim may well arise out of an individual’s multiple capacities. For example, an individual may be sued as a director and a shareholder of a company (perhaps as a purchaser or seller of company stock), or an officer of a homeowner’s association may also be a homeowner and it may not be clear whether his or her actions were taken as one or the other - or both. Similarly, a corporations’ lawyer may also sit on the board of directors.

Directors and Officers Insuring Agreement B (Corporate Reimbursement).

A typical director and officer insuring agreement B, or “B-side liability insurance coverage“, reimburses a corporation for its loss where the corporation indemnifies its directors and officers for claims against them. B-side coverage does not provide coverage for the corporation for its own liability. The language and conditions of Insuring Clause B typically mirror Insuring Clause A.

Many D&O policies offer an optional coverage to protect the corporation against securities claims. Such D&O liability insurance coverage provides protection for the corporation for its own liability. Many policies today provide such coverage to the corporation whether or not its directors and officers are also sued; other policies, however, provide such D&O liability insurance coverage only where the corporation is a co-defendant with its directors and officers. Entity coverage may be part of the policy form as “Insuring Agreement C” or may be added as an endorsement. The addition of entity officers and directors coverage for securities claims is a relatively new development, and addresses concerns and confusion raised by court rulings regarding allocation.

D&O Liability Insurance Coverages in Industry

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