Definition:Insured vs. insured exclusion
📋 Insured vs. insured exclusion is a policy provision found most commonly in directors and officers (D&O) liability insurance that bars coverage when one insured party brings a claim against another insured under the same policy. The exclusion exists to prevent collusive or intra-corporate litigation from being funded by the insurer — for example, a company suing its own directors to recover losses in a manner that effectively converts the policy into a business-loss recovery tool rather than a genuine liability protection.
⚙️ In a typical D&O policy, the insured vs. insured exclusion applies when the company itself, or a person qualifying as an insured under the policy, initiates suit against another insured. Variations exist in how broadly the exclusion is drafted: some forms include carve-backs for shareholder derivative suits, whistleblower actions, bankruptcy trustee claims, or employment-related proceedings, recognizing that not all intra-insured disputes are collusive. Brokers negotiate these carve-backs carefully during placement, because the scope of the exclusion can determine whether a multi-million-dollar securities claim brought by a bankruptcy estate or a board committee is covered. Underwriters evaluate the governance quality and litigation history of the applicant when calibrating how narrow or broad the exclusion should be.
💡 Getting the insured vs. insured exclusion wrong can leave a boardroom exposed at precisely the moment coverage is most needed. Post-acquisition disputes, internal investigations that morph into litigation, and regulatory-driven clawback actions can all trigger the exclusion if the policy wording has not been tailored to the insured's specific risk profile. The exclusion also surfaces in employment practices liability and certain professional liability forms, though its significance is most acute in the D&O context. Experienced risk managers treat the negotiation of insured-vs.-insured carve-backs as one of the highest-priority elements in any management liability program.
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