What is Severability in a D&O policy?
When reviewing D&O quotes or policies you may see the term severability or full severability and wonder what does this means?
So there are two forms of severability when it comes to D&O insurance.
The first is known as the severability of the application. What this means is that the insurer will sever or separate (or cut out) innocent insureds from not-so-innocent insureds when material misstatements or omissions are made in the application process.
Keep in mind that the application when it comes to D&O insurance is not just the paper or electronic form you fill in on renewal or your first D&O policy, it will include all the supplemental documents that go with that application and can include financial statements, cap tables, corporate by-laws, and other docs.
If the person or persons completing the application – new or renewal –make material misrepresentations in the application, then the policy is void for any insured who knew of those misstatements or misrepresentations. But innocent insureds have their coverage preserved.
This of course puts a fine point on the importance of accurately completing the applications and supporting documents.
The last thing you want to do is delegate the application process to someone who doesn’t fully understand the questions or the implications of answering them inaccurately and then having the President, CEO, or Chairman sign an inaccurate application.
When you hear the term FULL severability, it means that a policy provision provides that no insured’s knowledge or misrepresentations will be imputed an another insured; and this is what you want in your D&O policy.
Why is the application process a big deal?
Because underwriters rely on the application and its attachments to decide on whether to offer a quote on D&O insurance and price that quote.
The second form of severability in a D&O policy is the severability of exclusions. Here, an exclusion that may apply to one or more insureds under the policy such as the conduct exclusion for fraudulent or criminal acts will exclude cover for those insureds, but those insureds not involved in fraudulent or criminal activity will have coverage preserved.
While the two issues of severability are different and distinct from each other, it is important to understand them and more importantly your D&O policy.
As I’ve said many times in these videos, it’s critically important to read your policy – whether that’s a D&O policy, or your package policy, or your business auto policy to understand the nuances and complexities of your coverage.
Look, I get it. These are dense documents with a lot of languages that few insureds understand or want to dive into. That’s why you need an expert broker who has experience understanding policy language to help walk you through these policies so you know what you have and what issues you face.
Need help? Looking for that kind of expert? Why not contact me so we can discuss your issues and your coverage to make sure you know what you’re buying and what you have. My job is to help you be a more educated and informed buyer to make better insurance decisions. You can click the button below to get started.
I look forward to chatting with you!