A D&O Claim Can Start Before a Lawsuit: Why Reporting Matters
Waiting for a lawsuit can be a costly approach to reporting a management liability matter. Depending on the policy, a written demand, certain proceedings or a qualifying investigation may meet the definition of a claim before a complaint is filed in court.
D&O coverage is commonly written on a claims-made basis. The policy's requirements for when a claim is first made and when it must be reported are central to coverage. Those requirements should be read together with the definition of claim and any provisions addressing related matters.
Treat a demand as a coverage question
Suppose an investor sends a letter alleging misleading financial information and demanding repayment. Management expects to resolve the disagreement privately. Several months later, after renewal, the investor files suit.
If the earlier letter met the policy's claim definition, the filing date of the lawsuit may not determine when the claim was first made. Related-claims language may connect the later action to that earlier demand. The correct response is to evaluate the letter promptly and follow the applicable notice requirements.
Do not assume that every policy provides the same grace period after expiration. Reporting to a broker also should not be assumed to satisfy notice to the insurer. Confirm the required recipient, method and deadline, and retain evidence that notice was delivered.
Preserve continuity at renewal
A new policy does not automatically fix an unreported matter. Review prior-acts protection, any retroactive date, prior-and-pending litigation provisions and application questions concerning known claims or circumstances. These provisions perform different functions and should not be reduced to a single continuity date.
Some policies allow notice of circumstances that could produce a later claim. These notices are not counted as claims when loss runs are produced by the carrier. Such notice must meet the policy's requirements; a vague warning that a dispute might occur may be insufficient.
An extended reporting period may provide additional time to report qualifying matters under defined conditions. It generally does not insure new wrongful acts after the applicable cutoff or replenish limits already used. Ownership changes can also trigger runoff provisions that require advance planning.
Venture Commercial Insurance Services helps clients identify notice requirements and organize the information needed for reporting. Clear internal procedures can make it easier for leadership to recognize a potential claim and act within the policy's deadlines.
Editorial sources: IRMI reference, Chapters 3, 8 and 9; Chubb current claim-definition overview [1]. Verify deadlines against the actual policy.
