Latent claims also can develop as a result of individual-shareholder actions or derivative suits stemming from decreased stock values when large pollution- related liabilities and penalties are incurred that financially impair the corporation.

Most pollution exclusions in D&O policy forms encompass a wide range of liabilities. The following is an example:

The Insurer shall not be liable under this Coverage Section for Loss on account of any Claim made against any Insured:

7. which would not have occurred in whole or part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of Pollutants at any time, or which is otherwise based upon, arising out of or attributable to (a) any request, demand, order or statutory or regulatory requirement that any Insured or others test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of Pollutants, or any voluntary decision to do so; or (b) any demand, suit or proceeding by or on behalf of a governmental authority for damages because of testing for, monitoring, cleaning up, removing, containing, treating, detoxifying or neutralizing or in any responding to, or assign the effects of Pollutants;

including but not limited to any Claim for financial loss to any Company, its security holders or its creditors based upon, arising out of, or attributable to the matters otherwise described in this exclusion;

Zurich American U-PDO-102-A CW (05/03))

Many pollution exclusions use language excluding claims made against the directors and officers “based on, arising out of, attributable to, or directly or indirectly resulting from” various defined instances of pollution, including fines and penalties. Such wording implies that claims even remotely associated with pollution may be excluded. Such association could include claims made by shareholders suing not for the costs of damage or cleanup, but for losses incurred by the corporation because management negligently failed to provide adequate preventive measures or programs that could have prevented the loss. Depending on the scope of the exclusion, a pollution claim could be excluded when it can be shown that the firm's directors and officers were remiss in not providing adequate training in pollution control or employed inadequate measures for prevention.

Although the pricing of most D&O insurance does not contemplate coverage for pollution and environmental-liability claims, a few insurers do not include a specific pollution exclusion in their basic policy form. Other insurers may include the exclusion in their policy, but offer a separate pollution-liability policy.

Some insurers may be willing to alter the scope of the pollution exclusion to provide limited coverage for direct shareholder or derivative-action suits against the insured individuals. When the exclusion is modifies, care should be taken to ensure that conflicts with other equally broad exclusions, such as the bodily injury exclusion, do not still preclude the intended coverage.

Most D&O insurers, however, remain unwilling to provide any form of pollution coverage. Even those insurers that may not specifically exclude ensuing derivative actions may impose other broadly worded exclusions that preclude or limit coverage. The extensively worded pollution exclusions in many current policy forms leave little doubt about underwriters' intentions. The introduction of a separately available pollution cover by some insurers appears to reinforce their intention not to provide the coverage under their standard D&O policy forms.

The Insurance Services Office (ISO) has published a standard pollution liability policy (Form CG 00 39 1204), in which directors and officers of the corporation are specifically identified as insureds. Policies affording pollution and environmental-impairment liability coverage, however, are not standardized. Some may include directors and officers as insureds while others may not. There also may be questions, especially regarding the newer environmental regulations, as to whether the corporation would be allowed to provide indemnification or even whether insurance is permissible.