Almost all D&O insurance policies contain a definition of claim. Often when claim is defined, the result is to restrict coverage, as the undefined term claim generally means any demand for damages or other relief. If the term claim is defined, it is important that the definition be very broad because it is one of the policy triggers.

All D&O policies require that the claim first be made against the insured during the policy period or during any applicable extended reporting period. The timing and nature of a claim determine if and when coverage is triggered under the policy. Nothing happens until a claim is made and reported to the insurer in accordance with the policy's reporting provisions.

In some cases, a single occurrence or wrongful act may result in the filing of more than one claim. How the policy responds to multiple claims made during the policy period and that arise out of a single occurrence is determined by the wording of the policy's definition of related claims.

Most policies also provide for the reporting of circumstances that may give rise to a claim (referred to as a potential claim), as discussed later in this section.

Definition of Claim

Although most D&O policies define the term claim, such definitions often vary greatly from policy to policy. This is significant because even subtle variations of the definition can significantly affect coverage. The broader definitions include any demand, suit, or proceeding (judicial, administrative, or regulatory) that seeks monetary damages, services, or equitable or other relief. Some policies even include criminal proceedings commenced by a return of an indictment. The following examples illustrate the variety of language that has been used over the years to define claim.

Definition Limited to Written Demand for Monetary Damages

“Claim” means a written demand by a third party for monetary damages, including the institution of suit or a demand for arbitration.

RLI form DOC 101

This claim definition requires that the demand be in writing by a third party and for monetary damages. It is unclear whether this requirement would preclude claims made by shareholders acting derivatively or on their own behalf, as they may not be deemed by the insurer to be third parties. The definition does not include demands for equitable or other relief, nor for administrative proceedings. Consequently, this definition is very restrictive.

Definition Including Notice of Intent

C.“Claim” means:

(1)any written notice received by any Insured that any person or entity intends to hold such Insured responsible for a Wrongful Act, or

(2)any judicial or administrative proceeding initiated against any Insured seeking to hold such Insured responsible for a Wrongful Act, including any appeal therefrom.

Ausco, LAS 3000

This definition differs from the first example in that it includes notice (which needs to be in writing) of the intention to hold the insured responsible for a wrongful act and also includes both judicial and administrative proceedings. This definition is broad enough to include demands made before litigation starts. Although it does not specifically mention regulatory proceedings, the broad language probably encompasses such proceedings.

Definition Including Administrative Proceeding

Claim means:

1.a written demand for monetary damages or other relief;

2.a civil proceeding commenced by the service of a complaint or similar pleading;

3.a criminal proceeding commenced by a return of an indictment; or

4.a formal administrative or regulatory proceeding commenced by the filing of a notice of charges; formal investigative order or similar document;

against any Insured Person or, with respect to Insuring Agreement C., against the Company for a Wrongful Act, including any appeal therefrom.

Zurich American Insurance Company, U-PDO-102-A CW

The previous definition of claim requires a written demand but includes any formal administrative or regulatory proceeding commenced by the filing of a notice of charges, formal investigation order or similar document.

Some policy forms that provide coverage for allegations of criminal proceeding broaden the definition still further to include requests for extradition, arrest warrants, arbitration or mediation proceedings, and demands for production of documents, as illustrated by the following example: