Like all types of insurance, D&O has its own specific terminology. Here are some key terms used in regards to D&O liability exposure.

Allocation:  The step in which it is determined which percentage of loss is covered between the directors & officers and the firm itself. This step also spells out how much of the defense fees are advanced and, if a settlement is reached or a judgment entered, how much of that settlement or judgment is covered.

Claims-made Policy:  Policy coverage starts for claims made during the life of the policy.

Continuity Date:  The last instance in which a company signs a warranty.

Derivative Suit:  Legal action initiated by a shareholder (on the company’s behalf) against the company’s D&Os, claiming that the D&Os breached their fiduciary duty.

Discovery:  An option, afforded to assureds, allowing for the extension of premiums. If the assured chooses discovery (typically 12 months from cancellation of policy), the company can turn in claims made against the D&Os for alleged wrongful acts said to have been committed before the cancellation date.

Duty to Defend:  The insurer is required to assume and appoint an attorney to defend against a claim covered by the policy.

Entity Coverage:  All claims covered in the D&O policy will extend to the company.

Retroactive Date:  (aka “Retro Date” or “Prior Acts Exclusion”) The cut-off date used to determine which claims are covered under the policy. Claims stemming from wrongful acts completed before the cut-off date, or “Retroactive Date,” would not be covered under the policy.

Run-off:  When a company undergoes a change in ownership or experiences a significant shift in stockholder percentage, the ongoing acts coverage portion of the policy is no longer in effect for the rest of the life of the policy.