The policy includes punitive damages coverage. It is written with three separate coverages, each subject to their own limits and deductibles and each with their own exclusions. Coverage A is errors and omissions liability, coverage B is directors and officers liability, and coverage C is fiduciary liability. It is written in a claims made and reported basis, which is more restrictive than a claims made only policy. The policy period may be extended for the purpose of making claims and separately extended for reporting claims. Defense costs reduce the limit of liability and also may be applied against the deductible.

2. CONTACT. Tom Smith Assistant Vice President Shand, Morahan & Company, Inc. Shand Morahan Plaza Evanston, IL  60201 (847) 866-0713

3. UNDERWRITING GUIDELINES.

The policy is intended as primary coverage for non-Best Rated insurance companies, such as trusts, risk retention groups, captives, and start-up companies. However, they will offer terms to all carriers, from small, unrated ones, to distressed carriers, to large, financially strong carriers.

4. AVAILABILITY OF COVERAGE.

The policy is admitted in Illinois and is available in all other states on a non-admitted basis.

5.     LIMITS AND DEDUCTIBLES AVAILABLE.

Maximum in-house limits are $10,000,000 per claim, $10,000,000 aggregate. Minimum premium usually is $25,000, but they will go as low as $15,000 for small mutual companies. Their minimum deductibles are $50,000 for coverages A and B, and $2,500 for coverage C.

6.     INSURING AGREEMENT.

     Coverage A: Errors and Omissions Liability—The insured is indemnified for losses resulting from acts, errors, or omissions committed by or on behalf of an insured in the performance of Professional Services on a claims made and reported basis.

     Coverage B: Directors' and Officers' Liability—(1) Individual liability coverage: the insured is indemnified for losses resulting from a Claim that alleges any act, error, omission, misstatement, misleading statement, or neglect or breach of duty by the insureds solely in their capacity as directors and/or officers of the company insured on a claims made and reported basis.

     (2) Company reimbursement coverage: the insured is indemnified for losses that the insurance company lawfully indemnified the insured of coverage B resulting from a Claim that alleges any act, error, omission, misstatement, misleading statement, or neglect or breach of duty by the insureds solely in their capacity as directors and/or officers of the company insured on a claims made and reported basis.

     Coverage C: Fiduciary Liability—the insured is indemnified for losses resulting from a Claim alleging any breach of responsibility, obligation or duty imposed on the insured in connection with the Employee Benefit Plan under the Employee Retirement Income Security Act of 1974 or under any statute on common law of a stat, municipality, or other governmental entity.

7.     DEFINITIONS.

Among the terms defined are:

A.     Claim—means any adjudiciary proceeding against the insured seeking money damages in which the insured may be subjected to a binding adjudication of liability for the damages. A claim is considered first made when the insured first receives notice of  the Claim from a claimant.

B.     Employee Benefit Plan—means any pension, profit sharing, health and welfare or other employee benefit plan or trust listed in the declarations and established for the sole benefit of the directors, officers, and/or employees of the insured.

C.     Professional Services—means claims handling and adjusting, safety inspections, loss control, safety engineering services, premium financing operations, insurance consulting, actuarial consulting, risk management, insurance pool management, personal injury rehabilitation operations, and subrogation and salvage operations.

D.     Loss—means compensatory damages, punitive damages (except as otherwise provided in the policy), settlements, and claims expenses incurred by the insured and the insurer. Loss does not include (a) matters that are uninsurable; (b) under coverages B and C, punitive damages; (c) benefits paid to a beneficiary of the Employee Benefit Plan if the benefits may be lawfully paid by the Plan; (d) contributions paid to the Employee Benefit Plan pursuant to any obligation to fund the Plan; (e) fines, penalties, or taxes; (f) any obligation assumed by the insured as an insurer under a policy, contract, or treaty  of insurance, reinsurance, suretyship, annuity, or endowment; and (g) the return of premiums or commissions.

8.     WHO IS INSURED.

The Unqualified word “insured” means the Coverage A insured, which in turn means:

A.     any entity named in the declarations;

B.     any insurance entity created after the inception date by an entity named in the declarations as long as written notice and an application are given to the to the insurer within 60 days of its creation and the premium is adjusted and the coverage is amended as required by the insurer;

C.     any person who was or is a director and/or officer of any entity described in the declarations, solely while acting while acting within the scope of his duties;

D.     any person who was or is an employee of any entity described in the declarations solely while acting within the scope of his duties;

E.     any estate, heir, legal representative or assign of any person described above in the event of that person's death, incapacity or bankruptcy.

     For Coverage B companies, the following are also insured:

A.     any entity named in the declarations as insured under coverage B;

B.     any entity that is created after the inception date of the policy by an entity named in the declarations for coverage B as long as written notice and an application are given to the insurer within 60 days of its creation and the premium is adjusted and the coverage is amended as required by the insurer;

     For Coverage B individuals, the following are also insured:

A.     any person who was or is a director and/or officer in the company listed in the declarations under coverage B;

B.     any estate, heir, legal representative or assign of any person described above in the event of that person's death, incapacity or bankruptcy.

For coverage C, the following are also insured:

A.     any Employee Benefit Plan named in the declarations;

B.     any sponsoring employer named in the declarations;

C.     any person who was or is a director and/or officer, or employee of the sponsoring employer, but only with respect to their acts as a fiduciary of any coverage C insured ;

D.     any estate, heir, legal representative or assign of any person described above in the event of that person's death, incapacity or bankruptcy.

9.     EXCLUSIONS.

     With respect to coverage A, the policy does not cover any claim:

A.     arising out of the financial inability to pay claims or perform Professional Services;

B.     by any pool or association in which the Coverage A insured is a participant or by a participant in any such pool or association involving the operations of the pool or association;

C.     for liability assumed under any contract, except liability that would have attached to the insured in the absence of the contract;

D.     based on the inadequacy of claim reserves of the Coverage A insured;

E.     arising out of express warranties, guarantees or representations made in connection with safety inspections or loss control services;

F.     based on the Employee Retirement Income Security Act of 1974, or similar provisions in other statuary or common law;

G.     based on any employee benefit plan established for the benefit of directors, officers and/or employees of the entity named in the declarations or any of its subsidiaries or affiliates.

     With respect to coverage B, the policy does not cover any claim:

A.     based on Professional Services

B.     based on the Employee Retirement Income Security Act of 1974, or similar provisions in other statuary or common law;

C.     based on any employee benefit plan established for the benefit of directors, officers and/or employees of the entity named in the declarations or any of its subsidiaries or affiliates;

D.     arising out of the business conduct of any Coverage B Company insured as an investment company, an investment adviser, or a general distributor for any investment company or real estate investment trust;

E.     based on the Racketeer Influenced and Corrupt Organization Act;

F.     based on any Coverage B Individual Insured's duties as director, officer, or employee of any entity other than any Coverage B insured.

With respect to coverage C, the policy does not cover any claim:

A.     based on the liability of others assumed by any Coverage C insured under any contract, either oral or in writing, except in accordance with the terms of the Instrument of Declaration of Trust pursuant to which the Employee Benefit Plan is established;

B.     brought pursuant to Title IV, Subtitle D of ERISA or under any other statutory or common law of any government entity imposing similar duties;

C.     for the return by the insured of any remuneration paid to them if the payment is held by the Court to have been illegal.

With respect to all coverages, the policy does not cover any claim:

A.     based on bodily sickness, disease, or death of a person, but the exclusion does not apply to a Claim based on allegations of negligence against the Coverage A insured in the performance of Professional Services;

B.     based on damage to any tangible property, including loss of use, but the exclusion does not apply to a Claim based on allegations of negligence against the Coverage A insured in the performance of Professional Services;

C.     based on the insured gaining any personal profit or advantage to which he or she is not legally entitled;

D.     by reason of any criminal act;

E.     by reason of any dishonest of fraudulent act, but the exclusion does not apply to any Claim seeking both compensatory and punitive damages based on allegations of both fraud and bad faith in performing professional Services;

F.     based on any subject of any notice given before the effective date of the policy or under any other policy;

G.     based on libel, slander, or defamation, but the exclusion does not apply to Coverage A;

H.     by any other Insured under this policy, but the exclusion does not apply to any claim made by any Coverage B individual against any other Coverage B individual. The exclusion also does not apply to any claim made derivatively by a shareholder (other than an insured) or any policyholder (other than an insured) for the benefit of such entity where the claimant is acting without the solicitation of any insured, any affiliate of an insured, any regulatory agency, and insolvency fund, or any receiver, conservator, trustee, liquidator, rehabilitator of the insured.

I.     by any person or entity whose alleged injury or damage is based on the toxic nature of any substance;

J.     by any reinsurer of the insured.

10.     CONDITIONS.

The following are among the policy's conditions:

     Limits of Liability—With respect to Coverages A and B individually, the insurer is liable to pay the applicable percentage of participation in the loss that is stated in the declarations after the deductible and up to the stated limits. The participation is usually 100 percent. With respect to Coverage C, the insurer pays 100 percent of the loss after the deductible and up to the stated limits.

     Limit of Liability and Deductible—All Coverages—All coverages are mutually exclusive. If, however, more than one coverage applies to a Claim, the limit of liability with respect to the Claim shall be the highest under the coverage having the highest limit of liability available for the claim. Only the deductible applicable to the coverage having the highest limit available shall apply. If both coverages have the same limit available, only one of them will apply, and the lowest deductible of the two coverages will apply.

     Consent to Settlements and Claim Expense Incurred by the Insured—No claim will be settled without the consent of the insured, but the insurer will have the right to recommend a settlement. If the insured unreasonably refuses to settle the claim at the amount recommended by the insurer, the insurer's liability shall not exceed the amount for which the claim could have been settled. Likewise, the insured shall not settle a claim without the insurer's consent, unless it is within the deductible amount.

     Option to Defend—It is the insured's duty to defend claims made against them, but the reinsurer shall have the option, but not the duty, to defend the insured.

     Discovery Clause—If prior to the cancellation date or non-renewal date the insured first becomes aware of a specific act, error, or omission, etc. that is reasonable expected to result in a Claim, it may provide written notice to the insurer prior to the cancellation or non-renewal date. If a Claim later results, it shall be deemed to have been made during the policy period.

     Optional Extension Period—If the insurer cancels or refuses to renew the policy for reasons other than non-payment of premium or non-compliance with the terms of the policy, the insured may purchase an extension of coverage. Coverage will apply to a claim made during the number of days stated on the declaration page following the cancellation of the policy. The claim must be reported within 60 days of the expiration of the optional extension period. The act, error, or omission causing the claim must have occurred before the cancellation date of the policy. The premium for the extension period is fully earned at its inception. The extension period does not increase the limit of liability.

     Territory—The insurance afforded by the policy applies worldwide, but the claim must be made in the United States, its territories and possessions, Canada, or Puerto Rico.

     Claims Expense Incurred by the Insured and the Insurer—All Claims expense are included within the limit of liability.