As is the case with almost all insurance policies, directors and officers insurance policies typically include exclusions that they don’t provide coverage for. The specific exclusions that policies have can vary, but there are three that many Massachusetts insurers include in their directors and officers policies. Here’s a look at what these three exclusions stop policies from covering.
What Exclusions Are Typically Included in Directors and Officers Insurance Policies by Insurers?
“Insured Vs. Insured” Exclusions Prevent Collusive Lawsuits
“Insured vs. insured” exclusions, which are fairly common, generally prevent collusive lawsuits between officials and corporations. The exact language of policies’ regulatory exclusions can differ, but most of these exclusions stop officials and the companies they lead from working together and suing each other specifically for the purpose of collecting a payment from a directors and officers insurance policy. Both officials and their companies are normally considered insureds, so such a lawsuit would probably not be covered because of this exclusion.
For most businesses in Massachusetts, this exclusion isn’t a major factor. It usually only comes into play when two parties collude together, which many business leaders today recognize is unethical and probably won’t result in any payment from an insurer.
Regulatory Exclusions Stop Policies from Covering Suits Filed By Regulatory Agencies
Regulator exclusions are more common in certain sectors and less common in others. Any directors and officers liability insurance policy might have one of these exclusions, though.
These exclusions typically prevent policies from covering lawsuits brought by regulatory agencies, leaving businesses to pay for their own legal fees and any settlements associated with these suits. Depending on an exclusion’s language, it might impact suits filed by any regulatory agency, or it may only affect suits brought by agencies that are specifically listed. Additionally, government agencies, quasi-governmental agencies or self-regulatory agencies might be considered excluded regulatory agencies.
If your business’ directors and officers liability insurance policy contains this exclusion, it’s important to read the language in the exclusion carefully. The exclusion’s exact language will determine what agencies’ lawsuits a policy won’t cover.
Bad Acts Exclusions Stop Policies from Covering Illegal Acts
Almost all directors and officers liability insurance policies include bad acts exclusions. These exclusions are designed to prevent insurers from being responsible for improper any improper acts. They frequently exclude fraud, intentional misconduct, criminal acts and similar items.
Bad acts exclusions are unique in how they affect coverage. Unlike other exclusions that stop policies from paying for the legal defense of officials, bad acts exclusions sometimes don’t prevent officials from receiving funds to mount a legal defense. Instead, a policy may provide the resources necessary to mount a legal defense until a final verdict is determined. It might be only after an official has been found guilty of a bad act in court that the exclusion stops the policy from covering the incident. If an official is found guilty some policies might require the official to compensate their insurer for the legal defense that was provided.
Like “insured vs. insured” exclusions, most businesses and officials don’t have to worry about bad acts exclusions. Business leaders usually aren’t surprised that illegal acts are excluded from a directors and officers liability insurance policy’s coverages.
Massachusetts Agents Can Explain Directors and Officers Insurance Exclusions
For help understanding these three exclusions, or any others found in a directors and officers insurance policy, contact an independent Massachusetts insurance agent who specializes in this form of insurance. They’ll have the knowledge necessary to break down exclusions and explain what they prevent policies from covering.