Canadian Underwriter

D&O policies may not cover investigative costs

September 30, 2007   by

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Canadian corporations need to be cognizant of the type of investigation costs covered in their Directors’ and Officers’ (D&O) liability policies, a report from Aon’s Canadian Financial Services Group warns.

Companies need to consider whether, and to what extent, it wishes its D&O policy to cover investigative costs, wrote Brian Rosenbaum, Legal and Research Practices, Financial Services Group (Canada).

“In the case of internal investigations and derivative demand investigations, costs borne by the company or its directors and officers are really business expenses and are not incurred as a result of a claim made against an insured party for a wrongful act,” Rosenbaum wrote in ‘Investigative Costs: Does Your D&O Policy Provide Coverage?’

There may be situations where it might be preferable to leave this type of loss out of the purview of a D&O policy for fear it may unjustifiably erode policy limits, he added.

Rosenbaum suggested that should an organization decide that investigative cost coverage is necessary to consider the following:

* including informal proceedings in a claim;

* defining costs within the definition of loss to include investigative costs (ie: costs associated with the review and production of documentary evidence; appearing as a witness; and the recruitment of experts);

* negotiating an appropriate exception to the insured versus insured exclusion to deal with investigative costs borne by one insured investigating another insured; and

* adding a separate insuring agreement to cover the costs for derivative demand investigations.

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