Claims-Made Policy
Directors and Officers Liability Insurance, a Claims Made Policy provides coverage for claims that are made during the policy period. Claims-made policies are commonly used in professional liability insurance. This includes D&O policies, as they provide coverage for claims that are typically made after a service has been completed or a policy has expired.
Coverage Trigger
The coverage trigger for a claims-made policy is the date when the claim is made, not the date of the wrongful act. This means that if a claim is made during the policy period, the insurer will provide coverage for the claim. This includes an occurrence of a wrongful act before the policy was in effect. This can be advantageous for policyholders as it provides coverage for claims that may arise after the policy has expired.
Extended Reporting Time
One of the features of Directors and Officers Liability Insurance a Claims Made Policy is the extended reporting time, also known as tail coverage. This is an extended term following the expiration of the policy during which a claim can be lodged and coverage is still given. Depending on the rules, the length of the extended period for reporting may vary. It usually lasts between 30 days and three years.
The extended reporting period is important as it provides coverage for claims that may arise after the policy has expired, but before the claim is made. For example, if a policy expires on January 1, 2023, and a claim is made on March 1, 2023, the extended reporting period would provide coverage for the claim.
Reporting Requirements
Another important aspect of Directors and Officers Liability Insurance a Claims Made Policy is the reporting requirements. Policyholders are required to report any potential claims or circumstances that could lead to a claim during the policy period. Failure to report a potential claim or circumstance could result in the insurer denying coverage for a subsequent claim. It is important for policyholders to understand the reporting requirements and to report any potential claims or circumstances on time.
Case study
Let us discuss the case study in order to understand if the Directors and Officers Liability Insurance a Claims Made Policy
- Jane is a director of XYZ Corporation, which is facing financial difficulties. She is accused of mismanagement by a group of shareholders, who file a lawsuit against her and other directors.
- If XYZ Corporation has a D&O policy, Jane will typically only be covered if the lawsuit is filed during the policy period. If the policy has already expired when the lawsuit is filed, she will not be covered, even if the alleged mismanagement occurred while the policy was in effect.
- This is because D&O policies typically require that claims should be reported to the insurer during the policy period or within a specified timeframe after the policy expires. If a claim is not reported within this timeframe, the insured may lose coverage.
- Directors and Officers Liability Insurance are a Claims Made Policy, meaning that coverage is triggered by the filing of a claim during the policy period, rather than by the occurrence of an event. Directors and officers need to understand the specific terms and conditions of their policy, including the reporting requirements for claims.
Conclusion
Directors and Officers Liability Insurance is typically a claims-made policy that covers claims that are first made and reported to the insurer during the policy period. Directors and officers should carefully review their policy and consider purchasing tail coverage if they anticipate potential claims arising after the policy period expires.
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