Does D&O cover insured vs insured?

Understanding Directors and Officers (D&O) Insurance: Does It Cover Insured vs. Insured Claims?

Directors and Officers (D&O) insurance is a vital component of corporate risk management, offering financial protection to directors, officers, and the company itself against claims alleging wrongful acts in the performance of their duties. In this comprehensive guide, we’ll explore the intricacies of D&O insurance and delve into whether it covers insured vs. insured claims, providing valuable insights for businesses and executives.

1. Defining Directors and Officers (D&O) Insurance:

Overview:

• D&O insurance provides coverage for defense costs, settlements, or judgments resulting from claims alleging wrongful acts committed by directors and officers while acting in their official capacities.

Scope of Coverage:

• D&O insurance typically covers claims related to alleged breaches of fiduciary duty, mismanagement, errors in judgment, or misleading statements made by directors and officers.
  
  

2. Understanding Insured vs. Insured (IVI) Claims:

Definition:

• Insured vs. insured (IVI) claims arise when one insured party, such as a director or officer, brings a claim against another insured party, such as the company itself or fellow directors/officers.

Types of IVI Claims:

• IVI claims can include shareholder derivative actions, internal disputes, or allegations of misconduct between current or former directors and officers.
  
  

3. Coverage for Insured vs. Insured Claims under D&O Insurance:

Standard Exclusion:

• Most D&O insurance policies contain an exclusion for IVI claims, which means they do not provide coverage for disputes between insured parties.

Exceptions to the Exclusion:

• Some D&O policies may include exceptions to the IVI exclusion, providing coverage for certain types of IVI claims, such as derivative actions brought by shareholders on behalf of the company.
  
  

4. Importance of Understanding IVI Coverage:

Risk Management:

• Understanding the scope of IVI coverage under D&O insurance allows companies and executives to assess their risk exposure and implement risk management strategies accordingly.

Additional Coverage Options:

• Companies and executives concerned about IVI claims may explore supplemental coverage options, such as Side A DIC (Difference in Conditions) insurance, which provides coverage for individual insured parties in certain situations, including IVI claims.

While Directors and Officers (D&O) insurance is essential for protecting corporate leaders and the company from various liabilities, it typically does not cover insured vs. insured (IVI) claims due to standard exclusions in D&O policies. However, exceptions to the IVI exclusion may exist, highlighting the importance of carefully reviewing policy terms and considering additional coverage options to address specific risk exposures. By understanding IVI coverage under D&O insurance, companies and executives can make informed decisions to mitigate risks, protect their interests, and maintain effective corporate governance.