This exclusion is part of every Directors and Officers policy and excludes dishonest or fraudulent acts committed by an insured. It can extend to exclude intentional violation or breach of law/regulation and unfair profit or gain to which an insured has no legal entitlement. It is worth noting that most policies defend the Directors & Officers until final non-appealable adjudication and policies typically include severability clauses which state that a Wrongful Act or conduct by one insured shall not be imputed to other insureds.

Prior & Pending Exclusion states that the policy will not cover any pending or prior litigation involving the Company that has begun before the Prior & Pending date of the policy.

The policy will not respond to a Bodily Injury & Property Damage claim as this exposure is typically covered by a Public Liability policy.  This exclusion usually has a write back (gives coverage back) for Defence Costs, Employment Related Wrongful Acts and Security Claims.

There are many variations to this exclusion, but the main purpose is to not cover a dispute between insureds / the company and an insured in the USA.

This exclusion states that any future offering of securities is excluded.  There can be amendments to this exclusion to have a threshold of the amount of capital raised or where it is raised (ie. USA). This is an important exclusion for the managers of the D&O insurance, as they must notify the broker/insurer to ensure future capital raisings are underwritten before they can be covered.

This exclusion has a threshold for major shareholders (i.e. 10/15/20%) and the policy will not cover a claim brought by a major shareholder against the Directors & Officers. This exclusion usually has a requirement that the major shareholder has a holding more than the threshold and a board position to trigger the exclusion.

This exclusion removes any coverage for claims arising out of insolvency. This exclusion can typically be removed if the company shows they are in a good financial position and can cashflow the company for 12-18+ months.

This exclusion removes coverage in connection to the performance of or failure to perform professional services.

This excludes any claim which alleges the mismanagement of the company’s insurance program.

This excludes claims connected with nationalisation of a Company or any part of a Company’s business. It will also exclude the seizure, reversion, appropriation of a company’s assets by a governing body.

This excludes any wrongful act committed or alleged to have been committed prior to the inception of the policy. This is a way for insurers to exclude past acts and make the policy only forward looking.

This excludes any claim or allegation due to pollution or environmental event.

As a result of short selling, a number of the insured’s debt covenants were triggered. The insured was unable to refinance their debt, and as a result an administrator and a receiver were appointed. Subsequently the company was placed into liquidation.

An aggressive and wide-ranging ASIC investigation was undertaken, and public examinations of the former directors and officers of the insured were conducted by both the receiver and the liquidators.   This led to two criminal prosecutions (both successfully defended), a class action brought on behalf of the shareholders (subsequently withdrawn), a claim brought by an investment bank in respect of their off-market purchase of company shares, and most recently, a further criminal prosecution by the former CFO. The insurer assisted the directors and paid almost $15 million in defence costs.

The insured created a special purpose vehicle (SPV) to house a controlling interest in a listed mining company (target). The multi-million-dollar purchase price for the shareholding was agreed. At the time of the purchase, the directors verbally agreed in principle with a third party for the financing of the acquisition.

The third party failed to follow through with its agreement to provide financing and the purchase did not proceed. The SPV was wound up and a liquidator was appointed.

The liquidator initially conducted public examinations of the directors and company secretary of the SPV and then consequently commenced proceedings against the directors and company secretary of the SPV alleging they had traded whilst insolvent and failed to act with the requisite degree of care and diligence.

The quantum of the claim was almost AU$30 million plus interest and costs, however the claim was settled by the insurer for a significantly smaller sum. Approximately $500 thousand in defence costs were incurred in dealing with the public examinations, and in defending the claim against the directors and company secretary of the insured and SPV.

The insured made an Australian Stock Exchange announcement downgrading earnings expectations on a major construction project. Subsequently, the insured announced estimated losses on the project in excess of $100 million.

ASIC commenced an investigation into market disclosure. A class action was commenced on behalf of shareholders who traded in shares for the period at question.

The D&O policy limit was eroded by defence costs and compensation payments.

Less than five months after an insured’s IPO which netted considerable amounts for both the company and the IPO underwriters, the insured revised its fourth quarter results.

The revised financials resulted in a significant reduction in revenues for the period and included disclosures that the company‘s auditors had found significant weaknesses in its internal controls and would not endorse the accuracy of its financial statements. The news caused the company‘s stock to plunge well below its offering price. As a result, shareholders filed a class action suit against the company alleging that it had withheld information about negative trends in its business and had made false claims about its financials.

The insured was an exploration and production company. It owned a drilling rig which was intended to be utilised to undertake exploratory drilling. Following an initial public offering of shares pursuant to a prospectus, the insured was listed on the Australian Stock Exchange (ASX). The insured then encountered significant financial difficulties with respect to the provision of funds for the drilling program. It was unable to secure funds and the insured was placed in voluntary administration.

Several years later a class action was filed against three former directors. The action was brought on behalf of shareholders who acquired shares between the IPO date and the date of entering into administration. The class action’s claim alleges that various representations contained in the prospectus and in the ASX announcements relating to the rig, the drilling program and the insured’s cash flow position were misleading and deceptive.