When asked how he would respond to a client considering the purchase of D&O insurance, a prominent Yale law professor had this to say about D&O policy exclusions:

I believe I would tell him two things I do not know. First I do not know what the coverage is because I cannot tell what the exclusions mean . . . secondly, especially because I do not know what the coverage is, I would find it almost impossible to tell him whether the premium bore any reasonable relation to the actual size of the risk.

(Professor Joseph W. Bishop Jr., quoted in October 1969 in Rather Lillian, ed., “Protecting The Corporate Officer and Director From Liability,” Corporate Law and Practice Transcript Series, Number 9 ( New York City : Practising Law Institute, 1970).

Although this comment was made over thirty years ago, it is still valid of some modern policy forms.

This section of The D&O Book discusses some of the most common exclusions found in the “Exclusions” section of the basic D&O policy form or which are frequently added by endorsement. It does not address all exclusions, and some exclusions contained in the basic policy form may not be referenced in the policy charts contained in this book.

Exclusionary language apart from that contained under the “Exclusions” heading can be found throughout many D&O policies. For example, definitions frequently exclude some types of claims. Consider the following.

     Loss: Frequently excludes fines, penalties, punitive or multiplied damages, and taxes.

     Claim: May not extend coverage to administrative or regulatory actions or for proceedings seeking equitable or other relief.

     Wrongful act: Can be interpreted in some instances to preclude coverage for intentional actions or wrongful acts not committed solely in the discharge of the individual insureds' duties as directors and officers.

     Insureds: Can limit coverage to specified persons or classes of people.

Exclusionary language is also sometimes found in the “Conditions” section of the policy. For example, the “Other Insurance” condition frequently precludes coverage if there is other available insurance or indemnification to pay for a loss covered by the D&O policy. Some policy forms apply this exclusion only to the extent of payment under the other policy, only to other “valid and collectible” insurance, or only up to the amount of such other insurance (thereby making the D&O insurance excess of the other insurance). The coverage application may also impose a broad exclusion of prior acts or known circumstances that are likely to give rise to a claim.

Prefatory Language

Most exclusion sections of D&O policies begin with a prefatory or introductory phrase that can affect the scope the exclusion. One approach underwriters use is to simply state that the policy does not apply to claims “for” the specifically enumerated item being excluded. An example of this approach is the following:

(B) No coverage will be available under INSURING AGREEMENTS (A), (B) and (C) of this Policy for…

Executive Risk Specialty B24775 (8/97)

Another approach used by underwriters is to not only refer to that which is specifically excluded, but also to exclude any other claims that might arise out of or in consequence of the excluded item. The following is an example of this approach: