Understanding Directors and Officers Definitions
Chances are, your clients have a basic understanding of what Directors and Officers (D&O) Insurance provides them with; coverage for those employees of a business that serve on boards of directors or are in executive positions of their companies. Understanding this coverage is essential to obtaining the right policies for their business, but do your clients truly understand all the nuances of a Directors and Officers policy?
Understanding Directors and Officers definitions could help your clients make an educated decision when it comes to securing coverage. It’s imperative to remember that every policy will have different policy language, and you and your clients should refer to their specific policy to ensure clarity. The following are basic definitions found under a typical Directors and Officers policy.
Definition #1: Application
In recent years, the definition of “application” has reportedly become more critical than it once was. Misrepresentations on an application could potentially lead to policy cancellation or the imposition of coverage restrictions and/or exclusions.
Definition #2: Severability
Severability is a provision in an application for D&O liability insurance that states additional insureds will not be affected by one that makes false statements. For example, if an insured was aware that a coverage applications contained false financial data, this knowledge (which would bar them from being covered) won’t be attributed to any other insureds who had no knowledge that the financial statements weren’t true.
Definition #3: Claim
The definition of a “claim” has expanded in recent years, in response to a more competitive D&O marketplace. While a claim has traditionally been defined simply as a “written demand for monetary damages,” some definitions of a claim in today’s D&O marketplace include requests for non-monetary and injunctive relief as well as requests for extradition of an insured individual to a foreign jurisdiction.
Definition #4: Defense Costs
Almost all D&O polices in the marketplace will use similar language to provide their basic definition of “defense costs,” but some insurers are willing to provide coverage for additional costs that can be incorporated into the definition of defense costs. For example, some carriers will cover “pre-claim inquiry costs.” These are certain costs incurred by an individual insured in preparing for and responding to an inquiry.
Definition #5: Employment Practices Claim (EPLI)
Employment Practices Liability Insurance (EPLI) was once in a bucket all on its own. However, in the last decade or so, D&O policies have begun to include coverages for things such as the actual and alleged wrongful dismissal and discharge, harassment, discrimination, retaliation, employment-related misrepresentation, wrongful failure to employ or promote, and many other coverages that typically fall under EPLI.
The above descriptions are very brief explanations of common Directors and Officers definitions. It’s imperative that your clients confide in a legal expert in addition to their insurance agent to ensure they have secured the appropriate coverage for their situation. At PLRisk Advisors, we have the experience, knowledge, and markets to secure the policies your Directors and Officers clients require. To learn more about these coverages and see what other products we can assist you with providing to your clients, please contact us at (855) 403-5982.