based upon or attributable to their gaining in fact of any personal profit or advantage to which they were not legally entitled.

Lloyd's-Sturge Syndicate Form ALS (D5) 1st February, 1967 (Amended 1st September, 1967)

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

13. based upon, arising out of, or attributable to such Insured gaining in fact any personal profit, remuneration or financial advantage to which such Insured was not legally entitled.

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

The previous sample exclusions of personal profit do not contain language requiring that there be a final adjudication for the exclusion to apply (as is sometimes found in the dishonesty exclusion), but only that the illegal personal profit was gained “in fact.” This type of exclusions could possibly apply to claims where a director or officer was engaged in self-dealing transactions such as insider trading. Insurers often raise this exclusion as a defense of coverage whenever the underlying complaint or demand seeks “disgorgement” of profits or gains as a remedy. But the in-fact requirement may be ambiguous because it is unclear exactly what effect this might have on expanding the scope of the exclusion. It could be interpreted to mean that if the underwriters feel that the insured individual was the recipient of illegal profit or advantage, the insurer may invoke the exclusion. Then the insured individual might have to go to court to establish innocence so that the exclusion would not apply. It also may allow the insurer to litigate the question of personal profit in a separate action.

The previous examples preclude not only claims based on personal profit but also on any “advantage” to which the insured individuals were not legally entitled. The reference to personal profit seems clear to the extent that it includes improperly obtained money or money equivalents. This appears to be reasonable, as few would argue that illegal gains should be the subject of insurance.

The term advantage is somewhat more difficult to evaluate. Its use may raise questions regarding golden parachutes or other measures undertaken by management to entrench themselves in the face of a hostile takeover situation. These types of strategies also may be the subject of other specific exclusions. A derivative suit against ousted directors involved in an unsuccessful proxy battle might claim that such struggle was an improper and self-serving use of corporate funds for the purposes of merely extending the directors' and officers' own longevity.

Some policy forms attempt to clarify the issue of what constitutes final judgment by specifically defining evidence of such final judgment. Such wording is illustrated in the following example.

AMENDED EXCLUSION (B), CONDUCT ENDORSEMENT

(Final Judgment)

Section VII. Exclusion (B), is deleted in its entirety and replaced with the following:

(B) based upon, arising out of or attributable to such Director or Officer:

(1) having gained in fact any personal profit, advantage or remuneration to which such Director or Officer was not legally entitled; or

(2) having committed in fact a deliberately fraudulent, dishonest, criminal or malicious act or omission or any knowing and intentional violation of any statute or regulation, as evidenced by (i) any statement under oath by such Director or Officer, or (ii) any final judgment in any judicial, administrative or alternate dispute resolution proceeding.

AEGIS 6593 (8/2007)

Another similar exclusion deals with the return of remuneration to which the insured individuals were not legally entitled. An example is shown below.