Insured Vs Insured

Insured v Insured: A Principle in Professional Indemnity Insurance Cover. An exclusion found in directors and officers (D&O) liability policies (and to a lesser extent in other types of professional liability coverage). The exclusion precludes coverage for claims by one director or officer against another. The Insured v. Insured, is an exclusion that provides “the Insurer shall not be liable to make any payment for Loss in connection with any Claim made against any Insured brought by or on behalf of any Insured. Insurers consider the above to be moral hazards. Example: A board of directors of an Institution covered by a professional liability policy from company X, if one of the directors sue another due to internal disputes/infighting. In such a case company X will not cover the legal expense or any outcome of the court case decision because a liability policy is aimed at protecting the insured actions against third parties not against his/herself. The D&O are considered as one person working for the interest of the institution. The Insurers rationale for this exclusion is: • To avoid conflicts of interest, i.e. Insurers are not comfortable with covering claims between Insureds named under the same policy; • To avoid a collusion between Insureds to frame a claim between them and potentially enhance the profit of a project; • To avoid covering pure financiallosses or extra costs suffered by one Insured party due to another Insured´s decision. The traditional justification for the inclusion of the Insured vs. Insured exclusion in the D&O insurance policy is that exclusion is necessary to prevent coverage for collusive suits. As time has gone by, this explanation has been expanded to include the added justification that the exclusion is necessary to preclude coverage for claims that involve in-fighting disputes as might be involved in claims between board members which often are about something other than money, can be vexatious, and difficult to resolve. The logic of the Insured vs. Insured exclusion is that cover should not be given in situations where the decision to bring a claim or not is within the control of an insured. The relationship between the parties and whether the claim is genuinely adversarial will be examined in this context. #benewinsurance #insurtech #inclusiveinsurance #insurance #reinsurance #takaful