Personal profit:
No D&O liability policy covers claims against directors and officers resulting from their gaining personal profit or advantage to which they are not legally entitled, as, for example, through their use of inside information.

Excess remuneration:
If a director or officer becomes liable to return to the corporation salaries or bonuses received illegally without the stockholders’ prior approval, the insurance will not respond.

Short-swing profits:
If a director or officer profits by the purchase or sale of securities of the corporation within the meaning of Section 16(b) of the Securities Exchange Act of 1934 or similar provisions of any state statutory law, the policy will not protect the executive against resulting claims. The section of the law referred to above addresses profits an executive might make through the purchase and sale (or sale and purchase) of corporate securities within a period of less than six months.

Dishonesty:
If a claim alleging dishonesty is brought against an executive, the typical D&O liability policy will protect the insured unless it is established — by “judgment or other final adjudication” — that the executive engaged in deliberate dishonesty with “actual dishonest purpose and intent.” Loss to the principal through executives’ dishonesty is customarily insured through fidelity bonding.

Failure to procure or maintain insurance:
The insurance does not cover liability resulting from the failure to effect or maintain adequate insurance for the corporation. If, for example, the directors fail to authorize the purchase of products liability insurance and the corporation subsequently becomes liable for an uninsured, unfunded products liability loss, the insurance will not cover resulting claims against the directors. Some insurers will delete this exclusion after examining the corporation’s insurance program. Deletion may or may not entail an additional premium.
Indemnity under previous policy: Most policies exclude any coverage for claims covered under a previous policy (as through the discovery period described earlier). Some policies provide for excess coverage over such previous insurance.

Indemnity by corporation:
If a claim against an executive is paid in accordance with the corporation’s agreement to indemnify directors and officers, the executives would be enriched, rather than compensated, by a duplicate payment from the insurance company. Therefore, claims for which directors and officers receive corporate indemnity are excluded. (If the corporation carries corporate reimbursement coverage, it will itself probably be compensated in large part by the insurance company.)

ERISA:
The Employee Retirement Income Security Act (or Pension Reform Act) of 1974 so broadened the potential liabilities of fiduciaries of employee benefit plans that some insurers have chosen to eliminate coverage from their D&O liability policies for liability based on ERISA. Instead, the exposure is covered through separate employee benefit liability insurance.

Bodily injury or property damage:
Some policies emphasize the intended effect of D&O liability insurance not to overlap other forms of insurance covering liability for bodily injury and property damage.

Pollution:
Some policies exclude bodily injury and property damage resulting from pollution or contamination. Pollution claims represent an huge potential exposure for directors and officers. The director or officer can be held liable on a personal basis (if he or she had actual control over the handling of pollutants), or due to a “prevention test” basis through which the director or officer is held liable because he or she had the power to prevent the pollution and did not do so.

Nuclear hazards:
Generally, all insurers attach the broad form nuclear energy liability exclusion endorsement to their D&O liability policies.

Suits by the insured corporation:
Because D&O insurance is a form of “liability” insurance, most claims triggering coverage are third party lawsuits or shareholder derivative claims. However, in unusual suits brought in 1985 and 1986 by corporations against their own executives, the insurers were required to cover the liability of these executives. Since insurers viewed these lawsuits as an attempt to use D&O insurance to recover operating losses, many forms now include an exclusion to clarify that no coverage is available for claims brought by the insured corporation itself.