The increasing competition in the insurance market means that the coverage provided by the insurance provider is constantly expanding. However, for all the intentions, a D&O Insurance policy does not cover everything some situations and occurrences are excluded from cover for different reasons. Some of these examples are mentioned below:
- Known Circumstances and Claims: The main principle of the insurance is to protect unforeseen circumstances, and for this officers and directors and their insurance is no exception. A Directors & Officers Insurance plan does not provide coverage for the circumstances for which the management knows or the claim that is underway before the inception of the insurance plan. From the perspective of an insurance provider, there is no incentive to provide insurance to anybody who is going to suffer a loss as this can result in acquiring an unprofitable business.
- Risks that are Covered in Other Insurance Plans: A Directors & Officers Insurance policy is intended to protect against exposures related to management and are developed as they are part of the insurance program of the policyholder. As a result, they will not provide coverage for the losses that will be covered under some other insurance plan. For instance, risks related to property damage, errors in some professional advice, and bodily injury will not be covered in it as they can easily be insured in a separate insurance plan.
- Dishonest and Fraudulent Conduct: This plan is designed to offer protection to the officers and directors from decisions that they have made at the time of performance of their official duties. The policy does not cover dishonest, fraudulent, or criminal conduct. Before one denies indemnity to some executive, an insurance provider requires an assessment from formal authority or admission through the offending party. Generally, an insurance provider defends an executive as they are innocent until they are proved guilty. As per the separable provisioning of the policy, dishonest, and fraud exclusions may have a significant effect in case a non-offending executive is implicated in a claim.
- When Insured Parties Sue Each Other: This policy provides comfort to the executives as they know that they have financial security and experience of the insurance company at their back when they come across a claim. However, this insurance policy generally excludes claims from an organization against its officers and directors or by one insured party against another. The reason behind this is it removes the incentive of an executive to think up an action by the company against themselves to recover the losses of the company as a result of the mismanagement. In recent times, instead of excluding all the claims bought by a party that is insured, the insurance providers are broadening the cover to exclude the consensual claims in the case when an executive has solicited or invited litigation.
- Harmful Events for Insurance Providers: The insurance providers often select to limit their exposure to harmful situations. This is because the financial fallout of these situations is almost impossible to estimate. This can include risks related to nuclear events, war, and environmental damage. When we talk about D&O Insurance, the coverage can be written back in for all the claims related to environmental damage when the company is not able to indemnify the executives.
- Legal Proceedings Against Company’s Entities: The Directors & Officers Insurance policy was developed solely for directors and officers however its coverage has expanded with time for covering the costs that are incurred by the company in defending its executives. The insurance is not only for the use of a claim that is made against the insurance company except for the situations of securities and employment follows legal proceedings. One more exception for this is management liability products that are developed for medium and small businesses, which can offer the ability to unite a range of insurance plans for protecting the entity of the company.
- Claims that an Insurance Provider Is Not Permitted to Cover: Unfortunately, an insurance plan cannot give guarantee coverage for expenses of claims in various situations because of different legal regulations that are placed on the insurance providers and executives that they protect. An insurance provider can be able to pay the criminal penalties and fines issued to an officer or director as some of the jurisdictions prohibit insurers to provide coverage for such damages.
The Final Words!
The above areas are not covered in a Directors and Officers Insurance policy. So, if you want to file a claim keep these exclusions in mind.