Over the last decade, the D&O insurance industry has been fine-tuning coverage protections for innocent insureds from the not-so-innocent knowledge and acts of others–such as application and exclusion severability, and partial or complete non-rescindability.

Those solutions have evolved and generally address the concerns they are designed to address fairly well.

For example, application severability is generally intended to respond to the potential loss of coverage from knowledge or information a co-insured has that is material to the risk insured and that has been withheld from or misstated to the carrier.

While it seems like there are more forms of application severability than trees on the planet, the concept has been so refined over the last 10 years that very few policies lack a suitable form of response to this exposure.

Likewise, exclusion severability has evolved over time and should be readily available in an acceptable form.

Nevertheless, there are still opportunities for carriers to avoid coverage for some or all insureds due to the behavior of just one "black hat" insured.

To help insureds consider how their D&O coverage protects them from the other guy's greed, here are two key questions to consider in reviewing D&O coverage.

1) If I cooperate with my carrier in responding to a claim, but a co-insured does not, will I have coverage?

Too often, the answer will be a resounding "no!"

Nearly every D&O insurance policy contains a cooperation clause. If breached, an insurer may properly disclaim coverage for all insureds, not just the offending, uncooperative insured.

One theory behind the broad application of this provision may be that, for cooperation, each insured is their brother's keeper–that is, insureds are more likely to induce the other insureds to cooperate than the carrier or policy terms could on their own.

Problems can arise, however, when current and former directors or officers are co-defendants but do not share common defense strategies, or when one or more insureds have already lost their coverage. In those cases, there may be compelling incentives for insureds not to cooperate with each other and the carrier.

With the Securities and Exchange Commission, the Department of Justice and other enforcement bodies seeking to improve prosecution success through whistleblowers, these incentives are more prevalent today than ever before.

One simple solution is to ask for claims cooperation severability in your D&O policy. That way, each insured person's cooperation compliance will be judged solely on that insured's behavior.

2) Could my policy's insured vs. insured exclusion leave me without coverage due to another insured person's behavior?

In most cases the answer–unfortunately for the insured–will be "yes." Certainly, if an insured person is a plaintiff, most D&O forms would exclude coverage for all insureds. The "insured vs. insured" exclusion typically precludes coverage for claims by or on behalf of entity insureds and insured persons against other insureds.

Like severability, the insured vs. insured exclusion evolved through the addition of numerous exceptions that are routinely tweaked to provide coverage that might otherwise be precluded. As a result, the exclusion wording is often lengthy and complex, and still it fails to afford the needed comfort that an individual's coverage will survive the bad behavior of co-insureds.

The "D&O Diary Blog" by Kevin LaCroix, in a Sept. 26, 2006 entry titled "Fastow's Sentence, Future Civil Litigation, and D&O Insurance" (http://bit.ly/d85fmS), suggested that "a criminal defendant's offer to exchange information for leniency support may be a poisoned chalice for civil plaintiffs' attorneys [and, perhaps co-defendants, too], because accepting it and using the information against other directors and officers could potentially have the effect of precluding D&O insurance coverage."

Fortunately for public company insureds, solutions to this issue have been recently introduced into the market. Two in particular may be requested:

o Have your policy's insured vs. insured exclusion replaced with an entity vs. insured exclusion.

o Secure a policy in which the exclusion provides an exception for non-indemnifiable defense costs to ensure that in the worst-case scenario, where there is no right to indemnification, insured persons can still defend themselves.

Also, be mindful that the entity vs. insured exclusion without claims cooperation severability may prove ineffectual, since an insurer might assert that one insured suing another breaches the policy's requirement of full cooperation.

These features provide real value in their protection of innocent insureds, and the difference in results can be profound. Naturally, carriers may require additional premium to offset the additional exposure assumed.

Insureds may not be able to choose or know of everyone who shares their D&O coverage, but coverage can be tweaked to ensure that if they find themselves sharing with someone like Gordon Gekko, it will still be available to them despite Gordon's antics.

Robert Yellen is the chief underwriting officer of the Executive Liability Division of Chartis.