Section 9.12 General Characteristics

• Library: Insurance Practice 2015

A director and officer liability policy, like any insurance agreement, is to be interpreted in accordance with the law applicable to written contracts. Bartleman v. Humphrey, 441 S.W.2d 335, 343 (Mo. 1969); Langley v. Curators of Univ. of Mo., 73 S.W.3d 808 (Mo. App. W.D. 2002). When the agreement is unambiguous, its terms will be given their ordinary meanings. Davenport v. St. Paul Fire & Marine Ins. Co., 978 F.2d 927 (5^th Cir. 1992). When provisions in the policy are ambiguous, they will be interpreted in favor of the insured. Krombach v. Mayflower Ins. Co., Ltd., 827 S.W.2d 208, 210–11 (Mo. banc 1992). Courts will not strain to find an ambiguity where none exists. Rodriguez v. Gen. Accident Ins. Co. of Am., 808 S.W.2d 379, 382 (Mo. banc 1991); In re Ambassador Group, Inc., 738 F. Supp. 57 (E.D.N.Y. 1990). An ambiguity exists when a particular policy provision is open to more than one reasonable construction. Dahl-Eimers v. Mut. of Omaha Life Ins. Co., 986 F.2d 1379 (11^th Cir. 1993); Krombach, 827 S.W.2d at 211. Ambiguities also exist when there is duplicity, indistinctness, or uncertainty in the meaning of words or the words are susceptible to multiple interpretations. RLI Ins. Co. v. Drollinger, 97 F.3d 230, 231 (8^th Cir. 1996); McDonough v. Liberty Mut. Ins. Co., 921 S.W.2d 90, 93 (Mo. App. E.D. 1996). Because the average liability policy is a contract of adhesion with the terms not subject to negotiation, ambiguities will be resolved in conjunction with the reasonable expectations of the average insured. Krombach, 827 S.W.2d at 210–12; Lambert ex rel. Cobb v. State Farm Mut. Auto. Ins. Co., 820 S.W.2d 602, 604 (Mo. App. S.D. 1991); Lawrence v. N.Y. Life Ins. Co., 649 S.W.2d 461, 466–67 (Mo. App. W.D. 1983).

A typical director and officer liability policy contains an insuring clause that generally defines the scope of coverage. The definitions section of the policy will define:

· the “wrongful acts” for which insureds are covered;

· the “losses” for which the insurance company will provide reimbursement; and

· the procedures through which coverage must be perfected by providing the insurer with notice of claims made against the insureds.

The policy will establish the time period for which the insureds are covered, coverage limits, the amount of each loss that must be retained by the insureds, and exclusions from coverage.

The policies provide reimbursement for covered losses based on the insured becoming “legally obligated to pay” the loss, even if...