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<p align="center"><font face="Verdana, Arial, Helvetica, sans-serif" size="2"><a href="../index.htm">Home</a></font></p>
<p align="center"><font face="Verdana, Arial, Helvetica, sans-serif" size="2" color="#000000"><b><font face="Arial, Helvetica, sans-serif">Topics
in this article:</font></b></font></p>
<p align="center"><font face="Arial, Helvetica, sans-serif" size="2"><a href="#Coverage_Parts">Coverage
Parts</a></font></p>
<p align="center"><font face="Arial, Helvetica, sans-serif" size="2"><a href="#Coverage_Grant">Coverage
Grant</a></font></p>
<p align="center"><font face="Arial, Helvetica, sans-serif" size="2"><a href="#Wrongful_Acts">Wrongful
Acts</a></font></p>
<p align="center"><font face="Arial, Helvetica, sans-serif" size="2"><a href="#Wrongful_Employment_Acts">Wrongful
Employment Acts</a></font></p>
<p align="center"><font face="Arial, Helvetica, sans-serif" size="2"><a href="#Declarations_Page">Declarations
Page</a></font></p>
<p align="center"><font face="Arial, Helvetica, sans-serif" size="2"><a href="#Retroactive_Date">Retroactive
Date</a></font></p>
<p align="center"><font face="Arial, Helvetica, sans-serif" size="2"><a href="#Continuity_Date">Continuity
Date</a></font></p>
<p align="center"><font face="Arial, Helvetica, sans-serif" size="2"><a href="#Full_Prior_Acts">Full
Prior Acts</a></font></p>
<p align="center"><font face="Arial, Helvetica, sans-serif" size="2"><a href="#Extended_Reporting">Extended
Reporting</a></font></p>
<p align="center"><font face="Arial, Helvetica, sans-serif" size="2"><a href="#Duty_to_Defend">Duty
to Defend</a></font></p>
<p align="center"><font face="Arial, Helvetica, sans-serif" size="2"><a href="#Covered_Persons">Covered
Persons</a></font></p>
<p align="center"><font face="Arial, Helvetica, sans-serif" size="2"><a href="#Severability">Severability</a></font></p>
<p align="center"><font face="Arial, Helvetica, sans-serif" size="2"><a href="#Defense_Costs">Defense
Costs</a></font></p>
<p align="center"><font face="Arial, Helvetica, sans-serif" size="2"><a href="#Exclusions">Exclusions</a></font></p>
<p align="center"><font face="Arial, Helvetica, sans-serif" size="2"><a href="#Endorsements">Endorsements</a></font></p>
<p align="center"><font face="Arial, Helvetica, sans-serif" size="2"><a href="#Policy_Conditions">Policy
Conditions</a></font></p>
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<td height="4" width="425"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#000000"><img src="../images/2x2.gif" width="10" height="12"></font><font face="Arial, Helvetica, sans-serif" size="2">Directors
and Officers Liability FAQs</font></b></font></td>
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<div align="left">
<p><b><font face="Arial, Helvetica, sans-serif" size="2">Summary</font></b><font face="Arial, Helvetica, sans-serif" size="2">
The basic coverage in D&O insurance is protection for the organization
and the directors and officers against law suits brought by
members, employees, or third parties. </font></p>
<ul>
<li>
<div align="left">
<div align="left"><font face="Arial, Helvetica, sans-serif" size="2">Actions
brought by members commonly allege mismanagement of the
organization or conflict of interest. </font></div>
</div>
</li>
<li>
<div align="left">
<div align="left"><font face="Arial, Helvetica, sans-serif" size="2">Actions
brought by employees commonly allege discrimination, harassment,
or wrongful termination. </font></div>
</div>
</li>
<li>
<div align="left">
<div align="left"><font face="Arial, Helvetica, sans-serif" size="2">Actions
brought by third parties commonly allege financial mismanagement
or improper business practices. </font></div>
</div>
</li>
</ul>
<div align="left">
<div align="left">
<p><font face="Arial, Helvetica, sans-serif" size="2">The
primary difference between general liability and D & O insurance
is in the type of injury or loss covered. General liability
covers actions alleging bodily injury or damage to property
but excludes actions arising exclusively from a financial
loss. D & O covers financial type losses but excludes actions
arising <b><a name="Coverage_Parts"></a></b>from bodily
injury or property damage. </font></p>
<p><font face="Arial, Helvetica, sans-serif" size="2"><b>Coverage
Parts</b> A D&O policy can have up to four coverage
parts: </font></p>
</div>
</div>
<ul>
<li>
<div align="left">
<div align="left"><font face="Arial, Helvetica, sans-serif" size="2">Insurance
provided directly to the directors and officers. </font></div>
</div>
</li>
<li>
<div align="left">
<div align="left"><font face="Arial, Helvetica, sans-serif" size="2">Insurance
provided to the organization for its obligation to indemnify
directors and officers.</font></div>
</div>
</li>
<li>
<div align="left">
<div align="left"><font face="Arial, Helvetica, sans-serif" size="2">
Insurance provided directly to the organization when the
organization is named in an action.</font></div>
</div>
</li>
<li>
<div align="left">
<div align="left"><font face="Arial, Helvetica, sans-serif" size="2">
Insurance provided to the organization and directors and
officers for <b><a name="Coverage_Grant"></a></b>employment
related claims. </font></div>
</div>
</li>
</ul>
<div align="left">
<div align="left">
<p><font face="Arial, Helvetica, sans-serif" size="2"><b>Coverage
Grant</b> D & O policies begin with a short but very broad
statement as to what the policy covers. The remainder of
the policy then molds this broad coverage through exclusions,
endorsements, and conditions until the policy reflects the
intended scope of coverage. In the D & O coverage grant,
the insurance company pledges to protect the policyholders
from law suits arising <b><a name="Wrongful_Acts"></a></b>out
of their "wrongful acts". </font></p>
<p><font face="Arial, Helvetica, sans-serif" size="2"><b>Wrongful
Acts</b> The definition of wrongful acts is the first step
in narrowing the coverage grant. A wrongful act is any actual
or alleged error or misstatement or <b><a name="Wrongful_Employment_Acts"></a></b>action
or failure to act in connection with the organization’s
regular activities. </font></p>
<p><font face="Arial, Helvetica, sans-serif" size="2"><b>Wrongful
Employment Acts</b> Most D & O policies for Nonprofits include
employment practices liability coverage. For profit policies
typically offer this coverage as an optoin. Employment practices
liability coverage protects against allegations from employees
of employment discrimination, harassment, wrongful termination
and related actions. Unlike the basic wrongful acts clause,
wrongful employment acts are specifically enumerated. Policies
from different carriers vary as to the exact acts covered
so a careful review of this clause is <b><a name="Declarations_Page"></a></b>prudent.
</font></p>
<p><font face="Arial, Helvetica, sans-serif" size="2"><b>Declarations
Page</b> This is typically the first page of the policy
that contains terms and limits specific to the organization
including: </font></p>
</div>
</div>
<ul>
<li>
<div align="left">
<div align="left"><font face="Arial, Helvetica, sans-serif" size="2">Name
and address of the organization. </font></div>
</div>
</li>
<li>
<div align="left">
<div align="left"><font face="Arial, Helvetica, sans-serif" size="2">The
term of the coverage. Policies are typically written for
one year. </font></div>
</div>
</li>
<li>
<div align="left">
<div align="left"><font face="Arial, Helvetica, sans-serif" size="2">The
policy limit. Smaller organizations typically purchase
one to three million dollars of coverage with medium to
larger organizations carrying as much as twenty-five million
or more. </font></div>
</div>
</li>
<li>
<div align="left">
<div align="left"><font face="Arial, Helvetica, sans-serif" size="2">The
deductibles. Deductibles for small organizations typically
range from $1,000 to $10,000. Deductibles for medium to
large organizations range from $10,000 to as much as $250,000.</font></div>
</div>
</li>
<li>
<div align="left">
<div align="left"><font face="Arial, Helvetica, sans-serif" size="2">
Retroactive or Continuity Date. This is an important factor
in D & O insurance which is explained in the next section.
</font></div>
</div>
</li>
<li>
<div align="left">
<div align="left"><font face="Arial, Helvetica, sans-serif" size="2">Annual
premium. Policies are usually written for one year although
some <b><a name="Retroactive_Date"></a></b>carriers offer
an option for a three year policy.</font></div>
</div>
</li>
</ul>
<div align="left">
<div align="left">
<p><font face="Arial, Helvetica, sans-serif" size="2"> <b>Retroactive
Date</b> This refers to the "claims made" nature of D &
O policies. In claims made policies such as D & O, an incident
must meet two and sometimes three timing criteria to be
covered. </font></p>
</div>
</div>
<ul>
<li>
<div align="left">
<div align="left"><font face="Arial, Helvetica, sans-serif" size="2">The
first criteria is that the incident must be reported to
the insurance company during the policy period (or subsequent
renewals). This is true of virtually all D & O policies.
</font></div>
</div>
</li>
<li>
<div align="left">
<div align="left"><font face="Arial, Helvetica, sans-serif" size="2">The
second criteria is that the incident must have occurred
after the Retroactive Date. This date is a fixed date
that is negotiated with the insurance company at the time
the insurance is purchased. It is usually <b><a name="Continuity_Date"></a></b>the
date the organization first purchased D & O insurance.
</font></div>
</div>
</li>
</ul>
<div align="left">
<div align="left">
<p><font face="Arial, Helvetica, sans-serif" size="2"><b>Continuity
Date</b> Some policies have a third timing criteria—a Continuity
Date. This relates to incidents that have occurred prior
to the application for coverage and are known to the organization.
Continuity Dates are generally used when a known incident
is disclosed on the application for coverage. If the Continuity
Date is set after the incident occurred, the policy will
not cover claims for that incident even if they are first
reported during the policy term. Note that the policy does
not cover incidents that the organization knowingly fails
to disclose on <b><a name="Full_Prior_Acts"></a></b>the
application. </font></p>
<p><font face="Arial, Helvetica, sans-serif" size="2"><b>Full
Prior Acts </b> In some cases, carriers are willing to waive
the retroactive date limitation. This is accomplished by
either deleting all references to retroactive dates or by
using the organization’s date of incorporation as the retroactive
date. <b><a name="Extended_Reporting"></a></b>In either
case, this is referred to as providing "full prior acts"
coverage. </font></p>
<p><font face="Arial, Helvetica, sans-serif" size="2"><b>Extended
Reporting</b> This is also related to the claims made nature
of the policy. It refers to a condition that allows you
to extend the time a claim can be reported in the event
the policy is canceled. This is generally not an issue in
changing carriers as the new carrier will normally provide
prior acts coverage back to the first day a similar policy
was in force. It is a consideration in the event you decide
to no longer carry the coverage or in the event of merger
or dissolution of the organization. The time period for
reporting future claims and the cost for the extension is
either fixed in the policy or indicated on the declaration
<b><a name="Duty_to_Defend"></a></b>page.</font></p>
<p><font face="Arial, Helvetica, sans-serif" size="2"> <b>Duty
to Defend</b> This refers to how claims are to be handled.
There are three types: </font></p>
</div>
</div>
<ul>
<li>
<div align="left">
<div align="left"><font face="Arial, Helvetica, sans-serif" size="2">The
carrier assumes the duty to defend all covered claims.
</font></div>
</div>
</li>
<li>
<div align="left">
<div align="left"><font face="Arial, Helvetica, sans-serif" size="2">The
policyholder assumes the duty to defend with oversight
by the carrier. </font></div>
</div>
</li>
<li>
<div align="left">
<div align="left"><font face="Arial, Helvetica, sans-serif" size="2">The
policyholder can choose whether or not to assume the defense
at the time of the claim. </font></div>
</div>
</li>
</ul>
<div align="left">
<div align="left">
<p><font face="Arial, Helvetica, sans-serif" size="2">Many
insurance companies have both of the first two types of
defense available allowing the policyholder to make the
choice at the time the insurance is purchased. In general,
smaller organizations prefer the insurance company to assume
the duty to defend while larger organizations prefer to
control the handling of the claim themselves. Policies offering
the policyholder the choice at the time of the claim are
relatively new although it is likely more carriers will
adopt<b><a name="Covered_Persons"></a></b> this approach
if it proves popular. </font></p>
<p><font face="Arial, Helvetica, sans-serif" size="2"><b>Covered
Persons</b> Virtually all D & O policies cover past, present
and future directors and officers. Most policies for Nonprofits
also cover the organization itself (called "entity
coverage") while this is generally an option for an
additional premium with For-profit policies. Some policies
extend coverage to volunteers and <b><a name="Severability"></a></b>employees
for certain types of claims. </font></p>
<p><font face="Arial, Helvetica, sans-serif" size="2"><b>Severability</b>
Severability refers to how the acts of one insured will
be treated with respect to the other insureds. Most policies
provide that the intentional or criminal acts of one director
or officer will preclude coverage for that individual but
will not affect coverage for the organization or the other
directors and officers. Also important is the severability
provision relating to misrepresentations on the application.
The best policies state that such misrepresentations <b><a name="Defense_Costs"></a></b>only
affect coverage for the individual that competed the application.
</font></p>
<p><font face="Arial, Helvetica, sans-serif" size="2"><b>Defense
Costs</b> All D & O polices pay for the defense of claims
including legal fees. If the policyholder has the duty to
defend, then most policies will provide for the advancement
of defense costs. As with most liability insurance policies,
the insurance company is only obligated to defend claims
that allege a covered action. If the suit has allegations
of both covered and not-covered actions, then the insurance
carrier works with the policyholder to determine what percentage
each will contribute to the defense. Note that unlike general
liability insurance, the funds that the D & O carrier pays
for claim defense are counted toward the policy<b><a name="Exclusions"></a></b>
limit. They are also subject to the deductible. </font></p>
</div>
</div>
<div align="left">
<div align="left"><font face="Arial, Helvetica, sans-serif" size="2"><b>Exclusions</b>
The exclusions section of the policy modifies the coverage
grant in three basic ways: </font></div>
</div>
<ul>
<li>
<div align="left">
<div align="left"><font face="Arial, Helvetica, sans-serif" size="2">Eliminates
coverage for activities considered uninsurable. Examples
include exclusions for criminal acts, fines and penalties,
and acts for personal gain. </font></div>
</div>
</li>
<li>
<div align="left">
<div align="left"><font face="Arial, Helvetica, sans-serif" size="2">Removes
coverage for activities that are better insured under
other types of polices. Examples include bodily injury
and property damage, workers compensation, auto liability,
pollution, professional liability, media liability, and
fiduciary liability. </font></div>
</div>
</li>
<li>
<div align="left">
<div align="left"><font face="Arial, Helvetica, sans-serif" size="2">Reduces
or eliminates coverage for areas that present greater
exposures than the carrier is willing to entertain in
consideration of the premium charged. Examples include
exclusions for claims occurring before the retroactive
date, arising out of mergers or acquisitions, resulting
from the failure to maintain proper insurance, related
to standards setting, and arising <b><a name="Endorsements"></a></b>from
contracts. </font></div>
</div>
</li>
</ul>
<div align="left">
<div align="left">
<p><font face="Arial, Helvetica, sans-serif" size="2"><b>Endorsements</b>
Endorsements are policy attachments used to tailor the policy
for the specific organization to be insured. They may be
used to add coverage, remove coverage, or both. An example
is the common practice of adding a professional liability
exclusion for professional trade associations such as lawyers<b><a name="Policy_Conditions"></a></b>
or accountants. </font></p>
<p><font face="Arial, Helvetica, sans-serif" size="2"><b>Policy
Conditions</b> Every policy contains conditions that describe
both the insurance company’s and the policyholder’s obligations
under the policy. Important conditions include the cancellation
provisions, the requirements for reporting a claim, treatment
of subsidiaries, and how disputes with the carriers are
to be settled.</font></p>
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