Meaning
Contractual mechanisms in professional liability policies determine the distribution of limited insurance proceeds when both the corporation and its individual directors face simultaneous legal claims. This d&o insurance allocation process becomes necessary when the total demand for defense costs or settlements exceeds the aggregate limit of the policy. It prevents one party from exhausting the available coverage to the detriment of others.
Priority Agreement
Modern policies often include specific clauses that give priority to individual directors and officers over the corporate entity. This ensures that the personal assets of the managers remain protected even if the company itself is insolvent. Without such a clear d&o insurance allocation, the entity might claim the funds to satisfy its own creditors.
Settlement Ratio
Negotiating the split between covered and uncovered parties requires a detailed analysis of the relative legal exposure of each defendant. Insurers often use a percentage-based d&o insurance allocation to resolve claims involving multiple jurisdictions or diverse allegations. These ratios are typically based on the proportion of the loss attributable to insured versus uninsured conduct.
Payment Dispute
Disagreements over the timing and amount of payments can lead to separate litigation between the carrier and the policyholders. A failure to agree on a d&o insurance allocation can delay the resolution of the underlying liability claim.
