To What Extent Can Defence Costs Be Claimed under D&O Policy

Directors and Officers liability insurance policies have become an essential form of protection for companies and their directors and officers. It is crucial for claims made against them for alleged wrongful acts. However, a key question for insured parties is the extent of defence cost claim under D&O policy. The factors that determine the coverage of defence costs are listed below as how the courts have interpreted them.

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Defence Costs

Defence costs are the expenses incurred by the insured party in defending against a claim made against them. These expenses include legal fees, court costs, expert witness fees, and other related expenses.

D&O insurance typically provides coverage for defence costs, subject to certain limitations and conditions. However, the extent of defence cost claim under D&O policy and the conditions that apply can vary depending on the policy's wording. The jurisdiction in which the claim is made can also vary.

Coverage of Defence Costs

Most D&O policies provide coverage for defence costs. However, the coverage may be subject to certain limitations and conditions. For example, some policies may hide the number of defence costs that can be claimed. While others may only provide coverage for defence costs incurred after the insured party has satisfied a deductible or self-insured retention.

The wording of the policy is critical in determining the extent of defence cost claim under D&O policy of coverage. Some policies may define defence costs broadly, while others may have a more restrictive definition. For example, some policies may only cover defence costs incurred in connection with a covered claim. While others may provide coverage for defence costs incurred in connection with any claim, even if it is not covered under the policy.

Courts' Interpretation of Defence Costs Coverage

  • The courts have been called upon to interpret extent of defence cost claim under D&O policy of the coverage. The approach taken by the courts can vary depending on the jurisdiction and the specific policy language at issue.
  • In some jurisdictions, the courts have held that defence costs are part of the overall limit of liability under the policy. This means that defence costs will reduce the amount of coverage available to the insured party. This includes any judgment or settlement reached in connection with the claim. In other jurisdictions, the courts have held that defence costs are separate from the limit of liability. It means that the insured party can claim defence costs in addition to the limit of liability.
  • In some cases, the courts have also addressed whether the insured party is entitled to claim defence costs even if they are excluded under the policy. Some policies may contain exclusions for certain types of claims, such as claims arising from fraud or intentional acts. In such cases, the insured party may argue that they are still entitled to claim defence costs because the policy does not explicitly exclude coverage for defence costs in such circumstances.

Terms and Conditions of the Policy

The terms and conditions of the D&O policy will also impact the extent to which defence costs can be claimed. The policy language will define what constitutes a covered claim and what expenses will be covered under the policy.

Conclusion

The extent of defence costs claimed under D&O policies depends on a variety of factors, such as the policy language. This includes the jurisdiction in which the claim is made, and the specific circumstances of the claim. While most policies provide coverage for defence costs, the extent of the coverage and the conditions that apply can vary significantly. Insured parties should carefully review their policy language and seek legal advice to understand their rights and obligations to defence costs.

Written By: PolicyBazaar - Updated: 20 March 2024

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