Protection for Individual Directors and Officers: The Importance of Carvebacks
A carveback provision is a clause in an insurance contract that overrules an exclusion. Directors and Officers (D&O) policies often contain carvebacks to invoke coverage under the policy for certain situations that may have otherwise been excluded. These carvebacks can be very important to individual directors and officers to ensure they have the insurance coverage they need.
An Insured vs. Insured exclusion is found in most private company D&O insurance policies. While the intent of this exclusion is to disclaim infighting or collusive behavior amongst executives, there are important exceptions designed to provide coverage. Claims made by shareholders on behalf of the entity, known as shareholder derivative claims, is an example of a common carveback to the Insured vs. Insured exclusion. This carveback will protect individual insureds from shareholder claims as long as the claim is brought independent of other insureds. There are a multitude of carvebacks to the Insured vs. Insured exclusion, and policies have evolved to broaden the scope of coverage afforded to the insureds. Insurance carriers may even include Insured vs. Insured carvebacks for claims made by a creditors’ committee in the event of bankruptcy as well as some employment-related claims.
Cyber security is another area where directors and officers need to be aware. As the landscape surrounding securities litigation continues to change, emerging exposures such as cyber security could give way to a new wave of lawsuits that may impact directors and officers. Just as directors and officers owe the duty of care and loyalty to their organization, they also owe the duty of oversight. This oversight is not exclusive to financial performance. Cyber security falls within this duty. Should shareholders believe that the directors and officers breached this duty, they may be inclined to bring a claim on behalf of the organization. Therefore it is important to note that if D&O policies begin to evolve by placing an expressed exclusion for privacy breach claims, there should be a carveback for securities claims to protect individual directors and officers.
In addition to the above mentioned carvebacks, an Executive ViewPoint (EVP) policy from Devon Park Specialty also contains the following carvebacks so that your clients can protect themselves from these exposures:
- Carveback in the definition of “loss” for taxes imposed in bankruptcy on directors and officers for Side A Loss
- Carveback in the “Pollution” exclusion for insured person non-indemnified coverage (Side A) securities claims
- Carveback in the “Professional Services” exclusion for failure to supervise and securities claims
EVP offers coverage for directors and officers, employment practices and fiduciary liability, with limits up to $5,000,000 for each coverage part. Our EVP policy also has the following advantages:
- $100,000 sublimit for privacy breach expenses with coverage for securities claims arising out of a privacy event
- Additional Side A Limit of $1,000,000 automatically included
- Lifetime Occurrence Reporting Provision
- No hammer clause
- Sublimit of $100,000 (defense and indemnity) for Wage and Hour claims, available in most states
- Defense outside the limits up to $1,000,000
We are ready to quote your submissions today. Please contact your Devon Park underwriter for more information or a quote.
As always, thank you for your support and business.
Contact Kenny Bang
Product Leader | 844-438-6775 Ext. 2923
Written by Samantha Hildebrand
March 8, 2018