Most policy forms also extend the definition of subsidiary to include coverage for directors and officers of indirectly owned subsidiaries. Indirect interest in a subsidiary would include the parent's ownership through one of the corporation's other subsidiaries, as is provided in the following definition. When the policy does not provide this desirable extension, the insurer may provide clarification by endorsement.

     M. Subsidiary means any entity of which the Insured Organization, either directly or indirectly, or through one or more of its Subsidiaries:

1. Owns more than fifty percent (50%) of the voting stock; or

2. Has the right to elect or appoint more than fifty percent (50%) of the voting directors.

     A Subsidiary ceases to be a Subsidiary when the Insured Organization no longer owns more than fifty percent (50%) of the voting stock, or no longer has the right to elect or appoint more than fifty percent (50%) of the voting directors, either directly or indirectly, or through one or more of its Subsidiaries.

                                                                          RSUI Indemnity Co., RSG 241001 (02/04)

Most D&O policy forms require the insured to report to the insurer transactions involving the formation or acquisition of a subsidiary after the inception date of the policy. Normally this procedure is also required for mergers where the corporation remains as the surviving entity.

While some policies will extend coverage only to newly created entities upon the insurer's express approval to do so, other policies automatically attach coverage under certain conditions. In the following example, coverage is automatically provided and requires no reporting if assets of the new entity are below a specified percentage of total assets of the parent organization. When larger entities are created or acquired, the insured must report to the insurer, in which case the insurer may charge an additional premium.

1. Acquisition or Creation of Another Organization

     If before or during the “policy period” the “company”:

a. Acquires securities or voting rights in another organization or creates another organization, which as a result of such acquisition or creation becomes a “subsidiary”; or

b.  Acquires any organization by merger into or consolidation with the “company';

     the “insured persons” of such organization will be covered under this Policy, but only with respect to “wrongful acts” which occurred after such acquisition or creation. If the fair market value of all cash, securities, assumed liabilities and other consideration paid by the “named company” during the “policy period” for any such acquisition exceeds 10% of the total assets of the “named company” as reflected in the “named company's” most recent audited consolidated financial statements prior to such acquisition, the “named company”, as a condition precedent to coverage for any new “insured person”, must give written notice of such acquisition or assumption to us as soon as practicable, but in no event more than ninety (90) days after the effective date of such acquisition or assumption, together with such information that we may require, and must pay any additional premium required by us.

                                                               Insurance Services Office, MP 00 01 (04/03)

Note that coverage for directors and officers of an acquired or newly formed subsidiary is for wrongful acts committed or attempted only after its acquisition or creation. There is typically no coverage for claims based on wrongful acts occurring prior to the formation or acquisition unless specific arrangements are made with the insurer to provide such coverage.

Insurers may also retain the option to impose new or different policy terms and conditions upon the new entity, as shown in the following example.