Corporate officers looking to protect the board and corporate entity, often pursue the appropriate insurance policies (at appropriate limits), which is a wise first step. When securing coverage and assessing such policy terms and the structure of the insurance program however, there are a number of considerations that should be made. Here are nine overlooked mistakes that can result in the corporate entity and/or its corporate officers, losing its D&O insurance (and other claims made policy) coverages, and how to avoid them.
 

• Restrictive Policy Terms: Poor Policy terms are a leading cause of coverage denials. Aggressive "blanket" exclusions such as broad contractual/professional service exclusions contained within D&O insurance policies, are particularly problematic, as they have the ability to preclude coverage for a wide range of claims. Performing careful policy audits with a specialty broker or counsel, is the best way to avoid such traps. When reviewing terms, any problematic exclusions should be amended to contain narrower lead-in language and/or appropriate carve-backs when able. 
   
• Failure to Align with Org Charts: Failing to account for insured persons (such as general partners, foreign officers) or entities (such as joint ventures and subsidiaries). In the interest of avoiding such misalignment, always review your insurance program alongside your org chart.
   
• Misrepresentations on Applications: When applying for coverage, misrepresentations can quickly trigger the coverage to be deemed “void ab initio”. While misrepresentations made by the president or CEO will nearly always be imputed to the corporate entity, coverage should be in-tact for directors/officers unaware of such misrepresentations. Boards should still collectively review application questions before submitting them to insurers, and ensure all policies contain an application severability clause (while also understanding the policies’ imputation clauses).
   
• Late Reporting: Securing policies with broad definitions of “claim” are often welcomed, however when they become too broad, they also run the risk of being overlooked as a claim that actually requires reporting. For example, failing to recognize claims such as: emails stating misconduct and seeking reimbursement, to “requests for corrections”, to regulatory inquiries (that actually qualify as claims under the policy) can all result in failure to notify the carrier in a timely manner. Coverage denials due to late reporting can also arise when a claim is deemed inter-related to a previously reported (or unreported) claim/matter. It’s important that policyholders ensure all demands are carefully reviewed (against existing policy terms), and seek to obtain policy wording whereby the insurer agrees they must prove that they were materially prejudiced by reason of such late notice.  
   
• Failure to Notify: Failure to notify the carrier of a claim is a sure way to lose your insurance coverage. This includes failing to notify all D&O/E&O insurers in a participating tower, failing to notify carriers insuring other coverage lines, or failing to notify the correct carrier during a particular policy term (particularly where claims may be deemed inter-related). Always ensure any such claims are reported to all insurers in a participating tower, or where coverage may exist.
   
• Overly Broad Specific Matter Exclusions: In order to isolate coverage for prior claims, when switching carriers, insurers may attach a specific matter exclusion. These can range from very specific, to overly general (I have seen some that just name the claimant). When encountering such exclusions, ensure they are specific in nature and avoid any exclusions that are overly general.
   
• Failure to Tail: Failing to tail or align coverage during transactions such as mergers or acquisitions, public offerings or going private transactions is another mistake many board don’t realize until it’s too late. For financial firms, this also includes tailing coverage for any specific products that may be discontinued, such as private fund coverage or tailing discontinued investment advisory services. Failure to tail coverage, will result in future lawsuits/demands (alleging prior wrongful acts) being fully declined.
   
• Coverage Seizure: Having coverage seized by bankruptcy courts/trustees, as assets of the estate. In certain bankruptcy proceedings, courts may deem D&O insurance policy proceeds to be assets of the debtor in possession or bankruptcy estate, resulting in individual officers losing access to their coverage. Placing a separate/dedicated Side A policy can help insulate against such loss of coverage, since Side A policies don’t run the same risk.
   
• Improperly Advanced Retroactive Dates: Failing to carry over prior retroactive dates when replacing coverage. In some cases we have even seen carriers carry over incorrect retroactive dates when renewing their own policy. Incorrectly advanced retroactive dates effectively “erase” coverage for all future lawsuits/demands that may allege prior wrongful acts – leaving the organization beginning their coverage from a brand new inception date. This mistake is easily avoidable by reviewing all renewal terms as they’re received.