Director’s and Officers Liability Coverage Part Three

To continue our discussion of D & O liability coverage, let’s look at an aspect of claims denial.

The insurance carrier may deny coverage for reasons unrelated to the claim against you. Insurers can rescind a D&O policy – return the premium and pretend as though there had never been coverage – if they conclude at a later time that the application contained false or misleading information.

Seems reasonable. Insurers today require that financial statements be attached to the application. The problem here is that if your CFO cooked the books unbeknownst to you. This could nullify the policy.

To avoid this scenario affecting other board members that have clean hands, it is important to pay attention to the severability clauses contained in the policy. This prevents the insurer from using the acts of one bad actor to disqualify other officers and directors from coverage.

However, an even better scenario is to find an insurer to write a policy that is nonrescindable and noncancelable.