In addition, the application usually attaches to and forms an integral part of the policy form. This is important because most D&O applications often contain conditions, warranties, or reporting requirements that some insureds might normally expect to be found within the policy form. For this reason, important coverage elements or restrictions may go unnoticed unless careful scrutiny is given to the application.

D&O applications, sometimes referred to by insurers as proposals, can be tedious for the insured to complete, requiring much detailed information and the attachment of numerous corporate records, reports, and documents. Insureds seeking coverage for the first time, replacing expired or canceled coverage, or seeking to change insurers, will often be required to complete an initial application. These are sometimes referred to as long-form applications because of the depth of information requested. Long-form applications as a minimum seek the following:

•General or background information, including full description of operations, state of incorporation, annual sales, total assets, etc.

•Description of the specific limits and deductibles sought

•Information regarding stock ownership

•Information regarding subsidiary operations

•Information about who will be insured under the policy

•Disclosure of anticipated changes in the corporation's operations involving merger, acquisition or divestiture

•Specific corporate policies regarding takeover activities and limitation of director or officer liabilities

•Regulatory information if the insured is a financial institution

•Current, prior and pending claim information

•Attachment of corporate filings, records and documents

The exact information requested can vary greatly, depending on the individual insurer and specific class of business under consideration. Financial institutions, healthcare organizations and not-for-profit associations generally all require the completion of specialized applications. Most applications will also contain statements regarding warranty and imputation of liability as respects the information provided and require the signature of the president and/or CEO of the organization.

Insureds placing or renewing coverage with the same insurer are usually required to complete a renewal application. These are sometimes referred to as short-form applications. The term short form, though, can be misleading, as many insurers require the completion of applications that can be as detailed as the initial application. As a general rule, however, renewal or short-form applications often omit the requirement of the insured to provide claim information and soften or eliminate some or all warranty provisions.

Whether a first-time submission or renewal of existing coverage, completion of the application should not be undertaken casually. Insurance brokers or agents experienced in placing D&O insurance can provide valuable assistance to the insured in this area. While such assistance should not include the agent or broker actually completing the application on behalf of the insured, the experienced agent or broker can help guide the insured and help assemble and produce a coherent and well-organized application. While all questions should be answered truthfully and completely, the following areas should be given special attention.

Representations

Most D&O policy forms and applications for coverage contain conditions and warranties that all insured directors and officers should be familiar with. Such conditions and warranties can act as guarantees by the insureds that the information in the application is complete and correct. Misrepresentations that materially affect the underwriting of the risk can result in claims being denied or total rescission of the policy. Such provisions may be found in the application and/or in the policy form, as illustrated later in this article.

Contained in Application

2. It is declared that this application and any materials submitted or required (which shall be maintained on file by the Insurer and be deemed attached as if physically attached to the proposed Policy) are true and are the basis of the proposed Policy and are to be considered as incorporated into and constituting a part of the proposed Policy.

3. The undersigned declares that to the best of his/her knowledge the statements set forth herein are true and correct and that reasonable efforts have been made to obtain sufficient information from all of the Insured Persons to facilitate the proper and accurate completion of this application for the proposed Policy. Signing of this application does not bind the undersigned to purchase the insurance, but it is agreed that this application shall be the basis of the contract should a Policy be issued, and this application will be attached to and become part of such Policy. The undersigned agrees that if after the date of this application and prior to the effective date of any Policy based on this application, any occurrence, event or other circumstance should render any of the information contained in this application inaccurate or incomplete, then the undersigned shall notify the Insurer of such occurrence, event or circumstance and shall provide the Insurer with information that would complete, update or correct such information. Any outstanding quotations may be modified or withdrawn at the sole discretion of the Insurer.

4.The information requested in this application is for underwriting purposes only and does not constitute notice to the Insurer under any Policy of a claim or potential claim. All such notices must be submitted to the Insurer pursuant to the terms of the Policy, if and when issued.

CNA, G-133042-A (11-07)

Contained in Application

Your Duty of Disclosure

Section 21 of the Insurance Contracts Act 1984 provides that before you enter into a contract of general insurance with an insurer, you have a duty to disclose to the insurer every matter that you know, or could reasonably be expected to know, is relevant to the insurer's decision whether to accept the risk of the insurance and, if so, upon what terms. You have the same duty to disclose those matters to the insurer before you renew, extend, vary or reinstate a contract of general insurance.

However, your duty of disclosure does not require you to disclose matters:

that diminish the risk to be undertaken by the insurer;

that are of common knowledge;

that your insurer knows or, in the ordinary course of its business, ought to know;

as to which compliance with your duty is waived by the insurer.

This duty of disclosure continues after the proposal form has been completed up until the Policy Period commences.

Consequences of Non-Disclosure

If you fail to comply with your duty of disclosure, the insurer may be entitled to reduce its liability under the contract in respect of a Claim or may cancel the contract. If your non-disclosure is fraudulent, the insurer may also have the option of avoiding the contract from its beginning.

AIG, D&O Proposal Form (03-05) [Australia]

Contained in Policy Form