Insured vs Insured Exclusion

Purpose

Without this exclusion, a D&O policy could in theory be misused for collusive litigation: the company and a director or officer could coordinate a manufactured claim to trigger insurance proceeds without any genuine third party having been harmed. The insured versus insured exclusion prevents this by generally removing claims by one insured against another insured from cover, and equally addresses internal disputes and succession conflicts.

Effect and limits

The exclusion applies once both claimant and respondent fall within the policy’s definition of “insured” — typically the company itself together with current and former directors and officers. Without carve-backs, however, it would also catch legitimate claims, such as derivative suits brought on the company’s behalf, claims by an insolvency trustee, employment-related claims, or whistleblower actions. Market-standard policies therefore include carve-backs for exactly these categories; for listed companies the exclusion is also frequently narrowed to a tighter “entity versus insured” exclusion.

Negotiation and practice

At placement it should be checked which carve-backs (derivative suits, insolvency trustees, whistleblowers, former directors after expiry of a separation period) the specific wording contains, since these determine the practical scope of the exclusion. Particular attention is warranted for private-equity-backed companies where a sponsor representative sits on the board and the portfolio company later brings a claim against that board.