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Requires the Insurer to advance defense costs for covered Claims
after the applicable retention has been satisfied.
The process by which an Insurer evaluates which portion of a loss is
covered. An Allocation of coverage is made between (1) the corporate
entity and the Directors and Officers, (2) covered and uncovered
defendants in a Claim, and (3) the covered and uncovered allegations
of a Claim. An Allocation process normally occurs both at the
beginning of the claims process to evaluate how much of the defense
costs are advanced and again at the end of the claims process to
evaluate how much of a settlement or judgment is covered.
This provision establishes an alternate dispute resolution process
for situations in which there is a dispute between the Insurer and
the Insured. The outcome of this process may be binding or
non-binding. If the process is binding, the parties must abide by
the decision of the arbitrators, if not, the parties have the option
to take the dispute to trial.
Automatic Acquisition Coverage:
The policy automatically provides coverage for new subsidiaries
provided that the total asset size of the new subsidiary does not
exceed a pre-agreed percentage of the Insured's total asset size. A
60 to 90 day coverage window is usually available for new
subsidiaries which are larger than this threshold. The new
subsidiary must be noticed to the Insurer during this window, and
the Insurer must agree to provide coverage beyond the window.
Captive Insurance Company Exclusion:
Excludes coverage for claims arising out of the Insured's ownership,
operation or maintenance of a Captive Insurance Company.
Change of Control Provision (Run-Off):
Upon the occurrence of certain transactions (such as the acquisition
of the Insured), the policy ceases providing ongoing acts coverage
for the remainder of the policy period. This automatic run off
period normally lasts until the natural expiration of the policy,
but longer policy periods can be negotiated.
Change of Control Reporting Requirement:
Requires the Insured to report changes in ownership of voting stock
or voting rights which exceed a pre-determined percentage.
Commissions or Payments/Disbursements
Excludes claims arising from political contributions as well as any
payments, gratuities or benefits provided to domestic or foreign
government personnel, or to customers of the Insured.
Concurrent Liability Allocation:
Provides a pre-determined Allocation percentage for Claims in which
the Directors and Officers and the Corporate Entity are held jointly
liable. This provision applies to both securities and non-securities
Corporate (B and C Side) Retention:
States the monetary amount of costs and/or damages the Insured must
bear before coverage is provided under the policy. Applies to Claims
against the Corporate Entity itself as well as identifiable Claims
against the Directors and Officers of the Insured. May be split
between securities and non-securities Claims. A separate Corporate
Retention applies to each Claim or group of interrelated Claims.
Also called a deductible.
Coverage should apply to companies in which the named Insured owns,
directly or through one or more Subsidiaries, more than 50% of the
Cross Claims Coverage:
Typically included as an exemption from the Insured versus Insured
exclusion. This provision provides coverage for cross claims brought
by an insured against another insured for contribution or indemnity
as a result of an underlying Claim which would be covered if brought
directly against such insured.
Demands included within the Definition of
Broadens the definition to include Demands. Depending on the
Insurer, the extension may be restricted only to Written Demands for
A shareholders action brought on behalf of the corporation
against the directors and officers of the corporation for a breach
of fiduciary duty.
Also referred to as Extended Reporting Period. Recognizes Claims
which are made and reported after the policy's expiration date but
are based on Wrongful Acts which took place on or before the
policy's expiration. The option may be unilateral (can only be
exercised by the Insured if the Insurer cancels or non-renews
coverage) or bilateral (can be exercised by the Insured regardless
of who cancels or non renews coverage). Normally runs for a period
of 12 months beyond the expiration date of the policy and is
activated when the Insured pays a pre-agreed additional premium.
Duty to Defend Clause:
States that the Insurer will appoint defense counsel and assume
defense of a covered Claim. This process is more common in R&O and
Employment Practices Policies Liability.
Employment Practices Liability Extension:
Extends coverage to Directors and Officers for Claims alleging
employment discrimination, sexual harassment, wrongful termination
and other related employment torts. Coverage may be extended to
cover employees and, in some instances, the corporate entity.
Traditionally, Claims directly against the corporate entity were not
insured under a D&O policy. This resulted in the Insured and the
Insurer conducting an Allocation process to determine what portion
of a Claim was to be covered under the D&O Policy. Recent court
decisions have resulted in Entity coverage now being available.
Depending on the Insured, Entity Coverage may be available for all
Claims, or Securities Claims only.
Entity Coverage (Securities Claims):
Extends coverage to the corporate entity for Claims alleging
violations of the securities laws. A specific definition of
Securities Claim will be included in the extension.
Entity Coverage (All Claims):
Extends coverage to the corporate entity for all covered Claims.
This coverage is normally only available for privately held
companies. Please note, exclusions will apply to this extension.
Equivalent Foreign Positions Extension:
Broadens the definition of Insured Persons to include individuals in
foreign countries who hold equivalent positions to that of Directors
and Officers of domestically domiciled companies.
Failure to Maintain Insurance Exclusion:
Excludes claims arising out of the Insured's failure to effect and
maintain adequate insurance coverages to protect corporate assets.
Financial Reporting Requirement:
Requires the Insured to provide financial data (10Qs, 10Ks, etc.) as
they become available to the Insurer.
Excludes Claims arising from fraudulent or dishonest acts of the
Excludes claims arising from the Insured's purchase of its own
shares at a premium over their then current market value when such
offer is not extended to all shareholders of the Insured.
Hostile Takeover Exclusion:
Excludes coverage for claims arising out of an actual or attempted
hostile takeover of the Insured.
Hostile Takeover Exclusion (Limited):
Amends the Hostile Takeover Exclusion such that the Exclusion will
not apply when outside legal counsel affirms that the board's
actions are a fair exercise of the Business Judgment Rule and an
outside financial advisor states the offering price is inadequate,
prior to the board declining the offer.
Inadequate Consideration Exclusion:
Precludes coverage for Claims arising from the Insured's payment of
an inadequate price for the purchase of its own securities.
Individual Insuring Agreement:
States how the policy responds to Claims brought against the Insured
Persons when they are not indemnified by the Insured Organization.
Individual Retention (A-Side):
States the monetary amount of costs and/or damages the Insured must
bear before coverage is provided under the policy.
Insured vs. Insured Exclusion:
Excludes coverage for Claims brought against the insured by or on
behalf of other insured's. Carve backs from this exclusion are
routinely obtained for Derivative Suits, Cross Claims, and
Employment Practices Claims.
Initial Public Offering (IPO) Exclusion:
As opposed to a Securities Exclusion, this restriction only excludes
claims arising from an Initial Public Offering of Securities.
Major Shareholder Exclusion:
Excludes claims brought by shareholders who own greater than a
certain percentage of the stock of the Insured.
Management Buyout Exclusion:
Excludes claims arising from the sale of the Parent Corporation or
any Subsidiary (assets or stock) to any director, officer or
employee of the Company
Medical Malpractice Exclusion:
Excludes, among other things, claims arising out of errors or
omissions committed in the provision of medical services.
Notice of Cancellation:
States the number of days of notice which the Insurer must give to
the Insured when the Insurer wishes to cancel the policy.
Notice of Circumstance:
Notice of circumstance arise when an Insured is cognizant of any
fact, circumstance or situation which they have reason to suppose
might afford valid grounds for a claim. Reported circumstances that
later give rise to a claim will be considered reported at the time
notice of circumstance was given. Notice requirements vary from
policy to policy.
Notice of Claim:
States the period of time and the manner in which an Insured must
provide notice to the Insurer that a Claim has been made.
Notice of Public Offering Provision:
Requires that the Insured provide the Insurer with notice of a
public offering of securities in order for claims arising from the
offering to be covered under the policy.
Outside Directorship Coverage:
Provides coverage for claims brought against the Insured's directors
and officers while serving as a director or officer of an outside
entity (any non-profit organization or scheduled for-profit
organization) when the Insured has requested that they serve in such
capacity. The coverage applies on either a triple or double excess
basis. Triple excess means that the Insurer's policy applies excess
of the outside entity's indemnification provisions, the outside
entity's applicable insurance, and the Insured's indemnification
provisions. Double excess means that the Insurer's policy applies
excess of any applicable insurance or indemnification available to
the director or officer from the outside entity.
Panel Counsel Endorsement:
Requires use of a pre-approved list of defense counsel for certain
Excludes coverage for Claims arising from a suit filed against the
Company and/or its directors and officers for patent
infringement/intellectual property violations.
Pay on Behalf of Language:
As opposed to Reimbursement Language, this element of the Insuring
Agreements) states that the Insurer will directly pay covered
costs, judgments and settlements on behalf of the Insured's unless
contradicted elsewhere in the policy.
Pending & Prior Litigation Exclusion:
Excludes claims arising from litigation prior to or pending as of a
Pre-agreed Allocation for Securities
Establishes a pre-agreed Allocation percentage between the Directors
and Officers and the Corporate Entity for defined Securities Claims.
(i.e. the Insurer agrees to pay a predetermined percentage of a
defined Securities Claim-usually from 65 to 100%) (Also see:
Allocation, Concurrent Liability Allocation, Entity Coverage
(Securities Claims) )
Prior Acts Exclusion:
The Prior Acts Exclusion excludes Claims arising from Wrongful Acts
occurring before the Retroactive Date.
Professional Services (Errors and
Excludes claims arising from the rendering of professional services
for others for a fee.
Proprietary Rights Exclusions:
Excludes claims arising from disputes over licensing rights.
Punitive Damages Coverage:
Provides coverage for punitive damages where insurable by law. (i.e.
coverage will not apply if such coverage is against public policy in
the jurisdiction of the Claim)
As opposed to Pay on Behalf of Language, this element of the
Insuring Agreements) states that the Insured is responsible for
paying their loss and the Insurer will then reimburse them for
covered costs, judgments and settlements.
Related Party Transaction Exclusion:
Excludes coverage for claims arising from transactions with a
specified named party.
Retention Enhancement provision / Waiver
Amends the retention for Securities Claims only to apply to defense
costs. Also states that if the Securities Claim is settled or
adjudicated with no liability to any of the insured's, no retention
Also called the Retro Date. Claims arising out of Wrongful Acts
committed prior to this date are not covered under the policy.
Excludes claims arising from a violation of the Federal Racketeer
Influence and Corrupt Organization Act.
As opposed to an Initial Public Offering Exclusion, this restriction
excludes coverage arising out of violations of any securities law,
including, but not limited to: Blue Sky laws and common law.
Settlement Cap Provision ("Hammer Clause"):
Should the Insurer recommend a settlement and the Insured does not
consent, this provision limits the Insurer's liability to the amount
which the Insurer feels the litigation could have been settled plus
any defense costs incurred as of the date the Insurer recommended
Severability of the Application /
Warranties (Full Severability):
States that knowledge of a misrepresentation in the application
possessed by an Insured shall not be imputed to other Insured's for
the purposes of determining if coverage is available under the
Severability of the Application /
Warranties (Partial Severability):
States that only material misrepresentations made by the Insured's)
who signed the application will be imputed to other Insured for the
purposes of determining if coverage is available under the policy.
If the signers) of the application make a material
misrepresentation, coverage may be voided for all Insured's.
Severability of the Exclusions:
Provides that the Wrongful Act of any Director or Officer shall not
be imputed to another Director or Officer in the determination of
the applicability of a given exclusion. May apply to all policy
exclusions or only key exclusions.
Spousal Extension (Marital Estates
Extends coverage under the policy to the spouses of Insured Persons
for liability which they incur solely as a result of their status as
spouses. Does not cover the spouses for liability which they may
incur as a result of their own actions.
Warranties are legal representations that the Insured is not aware
of any facts or circumstances that would give rise to a claim under
a proposed policy. Warranties are generally signed once with a given
carrier when the Insured first purchases coverage from that carrier.
The older a warranty is, the less likely the carrier could invoke it
to deny coverage. Warranties are usually necessary when limits of
liability are increased.