â—Negotiation

â—Best Efforts

â—Mediation

â—Arbitration

Some policies may contain some or all of these provisions. There may also be no dispute-resolution method identified in the policy. In such instance the insured and insurer may voluntarily enter into any of these provisions or resort to litigation.

Negotiation

Negotiation is usually the first method of resolving disputes, whether such provisions are set forth in the policy. Negotiation simply involves discussion between the insured and insurer, usually with the insurance broker involved, to clarify policy wording and resolve differences of opinion or other controversies generally related to coverage. The following is an example of where negotiation is a provision of the policy:

Negotiation. The Insured Organization and the Insurer (each a “party”) shall attempt in good faith to resolve any controversy or dispute arising out of or relating to the Policy promptly by negotiations between executives who have authority to settle the controversy. Any party may give the other party written notice of any dispute not resolved in the normal course of business. Within fifteen (15) days the receiving party shall submit to the other a written response. The notice and the response shall include (a) a statement of each party's position and a summary of arguments supporting that position, and (b) the name and title of the executive who will represent that party and of any other person who will accompany the executive. Within thirty (30) days after delivery of the disputing party's notice, the executive of both parties shall meet at a mutually acceptable time and place, and thereafter as often as they reasonably deem necessary, to attempt to resolve the dispute. All reasonable requests for information made by one party to the other will be honored. If the matter has not been resolved within sixty (60) days of the disputing party's notice, or if the parties fail to meet within thirty (30) days, either party may initiate mediation of the controversy or claims as provided hereinafter.

All negotiations pursuant to this clause will be kept confidential and shall be treated as compromise and settlement negotiations for purposes of the Federal Rules of Evidence and state rules of evidence.

Aegis, 6100-P (9/2009)

Best Efforts

Some D&O policies contain language requiring certain types of disputes to be resolved by the insured(s) and insurer simply using their “best efforts.” The following is a generic example.

With respect to (i) Defense Costs joint incurred by, (ii) any joint settlement made by, and/or (iii) any adjudicated judgment of joint and several liability against the Company and any Director or Officer, in connection with any Claim other than a Securities Claim, the Company and the Director(s) or Officer(s) and the Insurer agree to use their best efforts to determine a fair and proper allocation of the amounts as between the Company and the Director(s) or Officer(s) and the Insurer, taking into account the relative legal and financial exposures of and the relative benefits obtained by the Directors and Officers and the Company. In the event that determination as to the amount of Defense Costs advanced under the policy cannot be agreed upon, then the Insurer shall advance such Defense Costs which the Insurer states to be fair and proper until a different amount shall be agreed upon to determined pursuant to the provisions of this policy and applicable law.

                                                                          Sample Best Effort Requirement

Such language addresses problems associated with allocating loss between insured and uninsured parties, which frequently occurs when the corporation and individual insureds have been named as codefendants in some action. While both parties may be jointly defended by counsel, expenses allocated to the defense of the corporation are generally not covered by the D&O policy unless the policy provides coverage for direct actions against the corporate entity. The allocation of loss between parties is often tricky business, and disputes are common.

Mediation

Mediation is a nonbinding dispute or claim settlement process that can sometimes help reduce or avoid the expense and agony of litigation by using a neutral third party to help the insured and insurer reach a mutually agreeable solution. The following is an example of a nonbinding mediation requirement in a D&O policy