The cover provided by D&O and PI polices is not intended to overlap. Both are types of liability insurance that protect the company and individuals from claims of negligence or errors and omissions, but there are key differences. Fundamentally, a D&O policy is intended to protect the Board and managers of a company in the event they face allegations of wrongful acts committed in their managerial capacity. A PI policy (sometimes called an Errors and Omissions or a Civil Liability policy) is intended to protect the company, in the event of allegations of wrongdoing in the provision of professional services (the breadth of professional services covered can vary but often extends to back-office supporting services). It is generally standard practice for a D&O policy for an FI to include a professional services exclusion, and conversely for a PI policy to include an exclusion in respect of managerial activities.
At a high level, the core covers under a D&O policy are:
At a high level, the core covers under a PI policy are:
The scope of insurance cover for the costs, legal and otherwise (other than fines which are typically excluded), of responding to an investigation or other regulatory request e.g. to respond to queries or attend an interview with the regulator, can vary. For D&O policies, this cover is generally provided for individuals, although it can be possible to obtain cover for the company’s costs too in certain circumstances (this is very uncommon in the UK insurance market). PI policies can provide cover for the costs of regulatory investigations directed at individuals or the company. The availability of this type of cover can vary from geography to geography, and can depend on the sub-industry the company operates in as well as the state of the FI insurance market generally.
In some situations, it can be unclear whether the D&O or PI policy is engaged in the event of an incident, for example:
If a claim names individuals involved in alleged wrongdoing
It is a familiar claims scenario that a claim is brought which involves the provision of professional services, but in addition to the company being a named defendant, one or more individuals are also named as defendants too. The question of whether or not the D&O policy is engaged depends on the nature of the allegations made against the individual(s). If the allegations relate to managerial activities, the D&O policy may be triggered whereas if the allegations are of a nature of providing professional services to third parties, it will not. In situations where an individual performs both managerial and professional services tasks, it may be a difficult distinction to make. Take the example of a senior individual who manages a desk of traders – they may be considered as having two hats – wearing one hat, they may conduct client facing professional services, and with the other, they may manage and supervise the team. The nature of the allegations levied against that individual will determine whether a D&O policy would respond to a claim. In practice making this distinction can be further complicated if there is a discrepancy between what a claimant alleges an individual’s activity was in a particular situation, and how the company (or the individual themself) claims they were involved in a matter.
If an investigation is directed at individuals
PI and D&O can generally (subject to terms and conditions) both respond to cover individuals’ costs responding to a regulatory investigation or other regulatory request – although it is not the case that this cover is always provided, and while it is common in D&O policies, it is not always common in PI policies – see above. The question as to which policy should respond depends on the activity which the accused individual is claimed to have been participating in and upon which the claim is based – and specifically whether that activity is managerial or supervisory in nature or part of the provision of professional services. The former may trigger the D&O policy and the latter the PI policy.
On a practical basis, if the status and/or the involvement of the individuals named is not clear from the outset, it can be prudent to notify both policies and keep both sets of insurers updated in the matter until it becomes clear which policy is engaged.
Yes – while the cover is not intended to overlap there may be claims which engage both PI and D&O policies concurrently. For example, if there is a claim against the company and also claims against individuals who have only been included in the claim by virtue of their executive status. In those circumstances the costs may need to be allocated between the policies appropriately. Absent specific wording in the polic(ies), this is usually done by agreement with the insurers involved.
As always, do discuss any questions around notification with your insurance broker. Both PI and D&O policies are “claims made” policies, which means it is the policy in place at the time a Claim is received which is engaged, rather than the policy in place when the wrongful act is alleged to have occurred. Also beware that in most policies the definition of claim, which is usually the trigger for making a notification, is often broader than the receipt of legal proceedings. So it is really important to ensure you notify the appropriate policy in a timely manner (and certainly before the policy expires) to avoid any issues around late notification.
