The D&O insurance is a corporate liability policy that safeguards the high-ranked officials in the organization. It acts as financial support and protects the personal assets of the directors and officers in the business. The executive rank holders have several duties and responsibilities to perform. The duties are crucial for the development of the company and business operability. If there is a loss to the company or to anyone associated with the company for mismanagement and mishandling of duties by the high-ranked officers, they can get lawsuits filed against them.
The employees in the organization, shareholders, colleagues, and consumers of the business can sue the officer or director for the loss. In such scenarios, the officer can take the legal ways to defend themselves from the allegations. The D&O insurance provides the cost and expenses related to the defense action and any penalties.
Eligibility of the claim and claimant
As you can spot from the name of the insurance policy, the insurance caters to the supreme executive rank holders in an organization. The D&O policy has three agreement clauses to define the coverage regulations and norms. By the Side-A agreement, the individual policyholder (director or officer of the company) can file claims to retrieve the cost. By the Side-B agreement part, the associated company becomes the policyholder. The company can claim for reimbursement of the legal expenditure and penalty charges from the insurance company.
So, the eligibility of the claims and claimant gets decided by the coverage clause and norms pre-defined by the associated insurance company.
Understand the eligibility factors
There are multiple claim exclusions or ineligible claims as per the D&O policy regulations. Understanding both eligible and ineligible claims and coverage aspects is crucial for the buyer and policyholder. Like every other policy (business or personal), the eligibility aspects differ based on the selected insurance provider. So, recognizing the right information is essential for anyone who is planning to buy the insurance or is an existing policyholder is important to mitigate and manage the risks.
Contractual liabilities – Is it eligible?
Many are unaware that a breach in the contract does not qualify for a claim approval in the D&O insurance coverage norms. The liabilities related to a contract and promised to a client or consumer of a company are not eligible for claim approval. The contractual duty is a voluntary liability and is not defended by legal methods. So, in such cases, if the director or officer claims for settling the penalties or for the legal charges, the D&O policy will declare it ineligible for approval and reject the reimbursement request.
The timeline sets the eligibility norms.
The timeline or period of a liability insurance policy determines whether a claim is eligible for approval by the insurer. What does it imply? It means, even if a claim is eligible for getting a reimbursement, it gets disqualified during the approval procedure; if the litigation notice gets served outside the policy period. The D&O insurance policy will not cover any liability having a timeline prior to the policy inception or purchase. The coverage and claim eligibility start from the day of purchase (subjective to the insurance company).
Things you must note
Following are some of the ineligible or disqualified claims that fall under the general rules and regulations of most D&O liability policies. It is essential to note the excluded coverage aspects so that you can have a better plan for risk management during times of need.
Claims related to personal gain
If there are claims that serve a personal profit or gain purpose, the D&O policy declares it not eligible for getting approval. The director or high-ranked officer in a company should abide by the corporate laws and duties, refraining from actions that serve as a personal profit gainer. Such acts are intentional and purposeful, making them not eligible for the D&O liability insurance policy.
An insured v/s insured claim
When one insured director brings a legal charge against another high-ranked insured officer or director, it is an insured v/s insured claim. In such cases, the D&O liability policy declares the claim not eligible for approval. Why? Because the liability insurance covers the defense cost brought by an affected party. It does not fund the actions of two policyholders against each other. Under this ground, such insured v/s insured claims get a not eligible tag.
Defamation and misconduct claims
Claims related to defamation, slander, and libel are not eligible under most D&O policy regulations. The comments of the high-ranked professionals may invite legal controversy but not every D&O insurer approves such claims. The same goes for deliberate misconduct by the policyholder. The two types of ineligible misconduct claims are-
- Fraudulent or criminal conduct by the policyholder
- Intentional acts to gain illegal profits
Other insurance coverage affecting the eligibility
If there are coverage aspects that can get reimbursement or coverage through another policy, the D&O insurer declares the claim ineligible. The policyholder cannot get multiple reimbursements for the different liability claims. For example – if a claim can get complete coverage through personal liability or general liability insurance, the D&O insurance provider can declare the claim non-eligible.
Dishonesty and misuse of funds – Not eligible
Dishonest actions and mismanagement of company funds to gain personal profit are not part of the eligible norms. It is common for most D&O liability policies as such claims arise from an intentional action of the policyholder. Willful acts with vested interest are strictly ineligible for the D&O policies.
Get authentic information from experts.
There are more nitty-gritty aspects to the not eligible claims and rules of the D&O policy and, they may vary as per the insurance company. The best source to gather genuine information is from an insurance expert or company representative. You can also find an insurance broker to clarify the concepts.
Connect to PlanCover
The well-known insurance broker company, PlanCover offers the most suitable D&O policies to businesses and organizations. They have a qualified team of insurance experts who have ample knowledge of the eligibility rules and coverage aspects. Get in touch with PlanCover and resolve every query you have in mind.