litigation made as of the Pending or Prior Date set forth in Item 5. of the Declarations, or alleging or derived from the same or essentially the same facts as alleged in such pending or prior litigation.

Philadelphia Ins. Cos. PI-ES-1560

The problem with exclusions like the previous example is that they refer to litigation in a general sense and do not require that the insureds be named in such prior litigation or even that the insured corporation or individual insureds be defendants. A lawsuit in a prior period may name only the corporation as a defendant. If such an action is not filed with the D&O insurer as a potential claim, a subsequent amendment of the action during the next policy period naming the individual insureds as codefendants could cause problems. Since claims from prior or pending litigation might be excluded, the only hope for coverage may be in the policy for the prior year in which the original litigation was either commenced or pending. This, of course, assumes the insured had sufficient detail to meet the reporting requirements and trigger the prior policy. Additional information on this topic is provided in the Claims-Made Coverage Features discussion in the Coverage Format section.

Another potential scenario involves the corporation bringing an action against a third party and later being on the receiving end of a countersuit naming the individual directors and officers as codefendants. In such a situation the insured might have no reason to suspect that a future claim against it might develop and, thus, no reason to attempt to trigger the policy, yet coverage may be denied by a future policy's prior-or-pending-litigation exclusion.

While a few prior-or-pending exclusions refer to litigation or claims pending as of a specified date, some insurers amend the exclusion to apply to litigation prior to or pending as of the policy's retroactive date. Still other insurers may agree to eliminate the prior-or-pending exclusion entirely. Exclusions where the prior-or-pending date is earlier than the policy's retroactive date are less restrictive, since the policy may grant coverage for litigation commenced after the pending-or-prior date but before the policy's retroactive date.

Prior-or-pending-litigation exclusions sometimes contain onerous language. Consider the following example.

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

(2) any Claim based upon, arising out, directly or indirectly resulting from, in consequence of, or in any way involving:

(c) any fact, circumstance, situation, transaction, event or Wrongful Act:

(i)  underlying or alleged in any prior and/or pending litigation or administrative or regulatory proceeding of which any Insured had received written notice before the Inception Date in ITEM 2(a) of the Declarations; or

(ii) Which, before the Inception Date in ITEM 2(a) of the Declarations, was the subject of any notice given by or on behalf of any Insured under any other policy of insurance;

Executive Risk B24775 (8/97)

Notice that the previous language relating to prior or pending litigation excludes claims that may only indirectly have as their basis circumstances, consequences or facts underlying or alleged in some prior or pending litigation. Some exclusions contain language that bars claims having as their basis facts or circumstances that are only similar to that alleged or underlying in some prior or pending litigation, and these exclusions can be particularly ambiguous.

A few policies contain prior-or-pending exclusion wording that precludes coverage for not only litigation and administrative proceedings, but for hearings as well: