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Tag Archives: D&O

Secure Favorable Wording in Contractual Liability Exclusion

Contractual liability exclusions are a fact of life in directors and officers (D&O) policy forms. While there is no getting around the existence of the contractual liability exclusion within standard policy wording, insureds can certainly benefit from variations in wording that can carve-back certain elements of coverage. Consider asking the following questions in order to determine potential ways to minimize the impact of the exclusion.

  • Is there a carve-back for liability that would have attached even in the absence of a contract or agreement? All policy forms should make this exception.
  • Does the exclusion bar coverage for written contracts only? Or does it also apply to oral contracts?
  • Does the exclusion only refer to “contracts,” or does it also apply to “agreements,” “warranties,” and/or “guarantees”? Inclusion of these other terms, especially when combined with wording excluding them in their oral forms, can significantly broaden the effect of the exclusion and thus constrict coverage.
  • Is there a carve-back for defense costs in the event of claims against insured persons (e.g., Side A defense coverage)?
  • Does the exclusion apply to both express and implied contracts? Much like the inclusion of some of the terminology shown above, implied contracts can extend the restrictive impact of the exclusion to a far greater range of the insured’s activities.
  • Does the lead-in wording to the exclusion bar coverage for claims “for” contractual liability, or does it bar coverage for claims “based upon, arising out of, or in any way related to” contractual liability? The former is the less common approach but is more favorable for an insured.
  • Does the exclusion explicitly state that it also applies to the liability of others that an insured assumes?
  • Is there an exception for contractual liability related to “employment claims”? With the blurring of some D&O and employment practices liability (EPL) risks in recent years and the frequency with which officers have employment contracts, this is particularly relevant.

Source: www.irmi.com

Coverage Extensions to Enhance D&O Policies

While standard directors and officers (D&O) policies are designed to protect a wide array of risks, they have their limits. Coverage extensions are used to address these limits, fill gaps and provide organizations with additional protections outside the scope of traditional D&O agreements.

Coverage extensions solve a wide range of problems and can be continually improved to address the changing landscape of D&O liability. This Coverage Insights details a number of D&O extensions you should consider.

Advancement of Defence Costs

One extension that can prove invaluable in the event of a claim is the advancement of defence costs extension. In essence, this extension requires the insurer to forward defence costs to policyholders throughout a defined period of time.

Without this extension, an organization or its executives may be required to fund their own defence costs until an insurer can assess the claim and reimburse them. This is typically a time-consuming process and can take months or even years.

This extension is particularly important, as legal costs can get expensive, and most organizations lack the upfront resources to pay for such services. It should be noted that, if it is determined that a claim is not covered, the policyholder would be required to repay any defence cost advancements.

Retired Directors and Officers

Under many D&O policies, in order for an incident to be covered, organizations must have an active policy when a claim arises. Because some claims may take years to arise, a company’s retired executives can be left unexpectedly exposed. To make matters worse, retired directors and officers typically have no control over an organization’s insurance once they have left the organization. Accordingly, they cannot ensure their former organization will purchase the proper D&O insurance.

To remedy this issue, policyholders can protect their former directors and officers by including an extended reporting period in their D&O coverage. An extended reporting period allows organizations or retired executives to report a claim to the insurer even if the organization no longer carries an active policy.

Outside Directorship

In some cases, directors and officers serve on boards of outside organizations. This often occurs when an executive takes a leadership position for an external non-profit.

Standard D&O policies may not offer sufficient enough protection in these instances, and outside directorship coverage may be needed. This extension is particularly useful, as it ensures that executives will be covered in the event that their non-profit’s insurance is insufficient or completely exhausted.

New Subsidiaries

When an organization purchases a new subsidiary, it is possible that the executives of these acquired operations could be open to D&O exposures.

The new subsidiaries extension is meant to address this concern, automatically covering any new subsidiaries and providing them with the same protection as the parent organization.

It should be noted that coverage only applies to claims that arise following the date of an acquisition. Automatic coverage may also be subject to the size of the acquired entity, and an endorsement may be required.

Spouses, Heirs and Legal Representatives

To protect themselves in the event of a claim, some executives transfer ownership of their assets to a third party. This often includes husbands, wives or guardians.

While this might be a sound legal strategy, it can also leave these third parties open to claims. The spouses, heirs and representatives extension is designed to protect third parties and the executive’s assets.

While this extension protects a third party from the actions of an executive, it does not protect them from the consequences of their own activities.

Other Common Extensions

In addition to the extensions above, there are a number of less common, but important, extensions to be aware of. The following are just some examples:

  • Civil or bail bonds. This extension can help cover the cost of civil or bail bonds, allowing a director or officer to be released from custody.
  • Public relations expenses. Following a D&O claim, companies may have to rebuild or protect their reputation. A public relations expenses extension covers the cost of engaging a public relations firm to improve public opinion.
  • Deprivation of assets. This extension gives executives funds for housing, utilities and personal insurance services. This coverage is especially useful if an executive’s funds are frozen.
  • Extradition costs. This extension covers the defence costs associated with opposing an extradition proceeding, including any bail process and subsequent trial.
  • Joint ventures. This extension provides coverage for claims arising from joint venture operations.

For more information about these and other D&O extensions, contact your insurance broker.

©  Zywave, Inc. All rights reserved.

5 Common Sources of D&O Liability

In today’s business climate of corporate transparency and accountability, an organization’s officers and directors face a myriad of employment-related exposures. Regardless of your company’s size or mission, the legal costs associated with a lawsuit can be crippling for both the organization and your directors and officers.

This Risk Insights explores five of the most common sources of directors and officers (D&O) liability.


Most directors and officers are surprised to learn that their own employees are one of the most common sources of a D&O claim against their organization. In fact, for private businesses and non-profit organizations, employees are the most common source of D&O claims.

If employees are mistreated during any phase of their employment, they may bring their concerns to the organization’s management team. If employees feel that their concerns have been not been addressed in a sufficient manner, they may see legal action as a means of rectifying their grievances.

Common employment practices claims against directors and officers include the following allegations:

  • Wrongful dismissal
  • Discrimination, including workplace and sexual harassment
  • Breach of employment contract
  • Failure to address health and safety concerns

Government and Regulatory Authorities

Governmental and regulatory authorities exist to monitor the environment in which organizations operate. These bodies help ensure that directors and officers and the organizations they control conduct their activities in a fair and lawful manner.

Government and regulatory bodies monitor compliance with a broad range of laws, including the following:

  • Corporations law: Governs the ownership and management of organizations
  • Securities law: Governs the administration of publicly listed companies
  • Consumer protection law: Governs the way in which organizations distribute products and services to consumers
  • Occupational health and safety law: Ensures that organizations maintain a safe workplace
  • Taxation law: Governs the taxation of organizations and individuals
  • Environmental law: Ensures that industry participants adhere to environmental restrictions

For directors and officers, the enforcement power held by these bodies presents a significant exposure to D&O claims. If regulators discover that wrongful conduct has occurred, they may pursue legal action against the organization and the executives involved.


As organizations attempt to grow their market share, management teams must ensure that growth is achieved through fair business practices. If an organization’s competitors believe that they have been unfairly disadvantaged by dishonest or illegal behaviour, they may seek recourse through legal action.

Directors and officers can be brought into legal actions for a range of perceived wrongdoings, including the following allegations:

  • Breaches of intellectual property
  • Misappropriation of trade secrets
  • Collusion
  • Anti-competitive behaviour

What’s more, directors and officers may also be held liable for actions that are perceived as misleading or defamatory, with claimants seeking damages for their perceived losses.


The management team of an organization has the responsibility of monitoring the organization’s financial position and its ability to meet debt obligations as they become due. If an organization becomes insolvent, creditors will often scrutinize the decisions of directors and officers to see if they can be held personally responsible.

If debts are left unpaid when an organization goes into liquidation, creditors can pursue executives personally in an attempt to recover outstanding funds. Common allegations by creditors against directors and officers include the following allegations:

  • Breach of fiduciary duty
  • Breach of duty of due care
  • Negligence
  • Deliberate misconduct


Due to their financial investment, shareholders have an incentive to monitor an organization’s ongoing performance and ensure that directors and officers are acting with the organization’s best interests in mind. With potentially large sums of money at stake, if shareholders are not pleased with an organization’s direction, they may take measures to protect their investment.

If it appears that management has breached their duties to the detriment of an organization, shareholders may bring a claim against those directors and officers.

Ask Your Broker for Help

Whether you’re a non-profit, privately held or a public company, it is likely that your business can benefit from a D&O policy. Since there is no such thing as a “standard” policy, a professional broker is invaluable when you go to purchase D&O coverage.

© Zywave, Inc. All rights reserved


Privacy and Health Disclosure Liability

3-business-people-in-boardroomPublicly held corporations must disclose information that may have a material effect on the company—and officer health is not among examples listed in the government’s definition of “material.”

As an officer or director at your organization, you have an obligation to disclose any information that might materially affect your company or affect investors’ decision to acquire or sell shares.

Personal privacy trumps disclosure obligations as long as you are able to continue performing your duties for the company—until you turn over your duties as a principal officer, you are not required to inform shareholders. However, shareholders will likely come to know of any health issues whether or not you disclose immediately.

Shareholder Litigation

There are two scenarios that could give rise to shareholder litigation should you choose to protect your privacy and not reveal that you are experiencing health issues. In both of these cases, stock price would have to drop dramatically to merit a shareholder lawsuit.

Shareholders could claim that the announcement of your illness came at the end of a period of misrepresentation and that the company had concealed information about your well-being for an extended period of time. In this case, plaintiffs would need to establish that the information was material.

In the event of your departure from the firm, shareholders could say more should have been disclosed prior to the leave, and that by not disclosing information, the stock price was artificially inflated.

In any case, if your company is highly dependent on you for proper functioning, if there is a doubt, the best practice is to disclose information about your health.

Your Right to Privacy

Disclosures are not necessarily required about officer health—and after all, it is difficult to decide at what point it is appropriate to disclose information. However, the issue is highly debated, and some believe that the potential harm an officer’s absence could cause the company constitutes a material effect.

Risk Transfer

Directors and officers (D&O) liability insurance will cover legal costs in the event of a shareholder claim. Both you and your business can benefit from a D&O policy. Since there is no such thing as a “standard” policy, an independent insurance broker is invaluable when purchasing D&O coverage.

© Zywave, Inc. All rights reserved



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