What would happen if the SEC found the directors guilty of fraud, personal profiting, etc.? Would that be the trigger for the standard exclusions leaving the BoD unprotected by D&O insurance?

Standard exclusions include fraud, personal profiting, accounting of profits, and other illegal compensation exclusions, pending and prior litigation, prior (late) claim notice, bodily injury/property damage, pollution, insured versus insured claims and ERISA (the Employee Retirement Income Security Act of 1974). Insurers may also include other exclusions based on their own claims payment experience, such as hostile takeover or captive insurance company exclusions.

Some exclusions pertain to areas usually covered under some other type

of insurance. ERISA violations are usually covered under a Fiduciary Liability policy, property damage may be covered under a General Liability policy, etc.

9. Wouldn’t an exclusion for fraud or personal profiting eliminate coverage for most claims?

While a large percentage of D&O claims include allegations of fraud or illegal personal profiting (or both), the simple allegation is not enough to trigger the exclusion. Most, if not all, such exclusions require something like a court determination of guilt or an admission of guilt before the exclusion can apply. Either the words “final adjudication” or “in fact” will be used in the exclusion to indicate how high the hurdle is for the carrier to apply these exclusions.

Defense costs incurred for such a claim are typically covered by the policy until such time as the wrongful conduct is determined to have “in fact” occurred, or until there is a final adjudication. This means that a settlement without an admission of wrongdoing usually does not trigger the exclusions. In the event there actually is a finding of fraud or personal profiting, those directors and officers who are not

found guilty continue to be covered even after others may have confessed or been adjudged guilty.

http://www.willis.com/documents/services/Executive%20Risks/Willis_DandO_FAQ.pdf