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 from bodily injury or property damage.

Coverage Parts A D&O policy can have up to four coverage parts:

Coverage Grant 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 out of their "wrongful acts".

Wrongful Acts 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 action or failure to act in connection with the organization’s regular activities.

Wrongful Employment Acts 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 prudent.

Declarations Page This is typically the first page of the policy that contains terms and limits specific to the organization including:

Retroactive Date 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.

Continuity Date 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 the application.

Full Prior Acts 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. In either case, this is referred to as providing "full prior acts" coverage.

Extended Reporting 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 page.

Duty to Defend This refers to how claims are to be handled. There are three types:

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 this approach if it proves popular.

Covered Persons 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 employees for certain types of claims.

Severability 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 only affect coverage for the individual that competed the application.

Defense Costs 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 limit. They are also subject to the deductible.

Endorsements 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 or accountants.

Policy Conditions 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.