Yes, Directors and Officers Liability Insurance is a claims-made policy. This policy is a pillar of strength through the dark phase since it safeguards the directors, officers and management against financial crisis arising due to alleged or actual wrongful acts. It is an inevitable part of risk management portfolio and a supportive presence at the time of contingencies.
A claims-made policy covers only potential claims which are occurred and reported during the period of insurance. The policy has to be active when the alleged incident happens and when the claim is reported so these dates are the keen considerations in a claim-based policy. This type of policy provides coverage of incidents from the inception date provided that the policy is continuously renewed every year. There are unique benefits offered by claim-made policy such as:
– Low-cost premium for first few years because the period of exposure is short.
-Covers past, present and future directors.
-Covers prior acts with the retroactive settlement.
Generally, the retroactive date is the inception date but there is more in the realm of retroactive date, one can extend back to a specific date from which all the losses and contingencies would be covered. The insurer can negotiate on the policy term period and avail coverage for prior acts.
Example: The insurance inception date is 1 January 2018 but the insured negotiated with the insurer and using the retroactive date option extended back his D&O policy coverage from 1 January 2015. In this case, all the loss incidents will be covered from 1 January 2015. This facility is not provided by all insurer, however, some insurer may offer you this coverage, provided your D&O policy do not have any break.
The focus is always on the date of notification of claim and the alleged incident date. In order to settle your claim without much hassle, inform the insurer about the potential claim as soon as you become aware of it.
Directors and Officers liability insurance is a claims-made insurance. The quest of the insurer and insured is to ascertain the specific retroactive date from which the coverage would be implemented. The policy term period has to be determined using the expertise of loss occurrence forecast or risk factors. While opting for Directors and Officers Liability Insurance, it is crucial to study the impact of claim-made policy as initially the premium would be low but later on with the larger span of time, the exposures will increase which ultimately result in a high premium cost. Directors and Officers Liability insurance provides coverage against error, negligence, misleading statements, acts or omission or breach of duty and ensures reputational and financial stability
A company has Directors and Officers liability with a term period of 2010-2011. A client alleges the director for manipulating the contract details and filed a case against him in November 2010 but the company did not inform the insurer about the claim. The insurance company came to know about the claim after the policy term period is over. In this case, the claim is not payable because it is not reported during the policy term period although the incident has occurred during the policy term period notification is done after the policy is exhausted so the claim is not known as a D&O claim as it is a claims-made policy.
Informing the insurer about the claim during the policy term period is crucial in D&O liability policy. Protect your professional services from day one from all the probable risk exposures and ensure a continuous renewal of the policy. Stick with the policy for the long haul and become more peaceful and safe by mitigating the risk efficiently.
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