FAILURE TO CARRY INSURANCE

QUESTION. If the board is sued for NOT carrying workers' compensation insurance, are directors protected by Directors & Officers liability insurance?

ANSWER. Probably Not. If directors are sued for failing to purchase insurance, many D&O policies specifically exclude claims for being under-insured. They use a "failure to maintain insurance" provision within their D&O policy--but consistent in every Directors & Officers Liability policy is a specific exclusion for any claim "arising out of, directly or indirectly resulting from or in consequence of, or in any way involving" . . . bodily injury or sickness. This would include bodily injury or sickness whether workplace related or not.   

That is because the pricing of the D&O coverage does not contemplate being the ultimate catch-all policy ("safety net") for every instance where the board failed to purchase coverage. If the D&O were to provide such coverage, there would be no way for the actuaries to price the coverage. Moreover, the board would have no reason to purchase any insurance--they could just maintain the best D&O policy possible (with the highest limits) and hope for the best.

As a result, the carrier would probably not provide the board with a defense because the underlying matter was specifically excluded. However, there might be exceptions and the carrier might provide defense costs.

Updated 5/7/2008