What Is the Insured Versus Insured Exclusion and Why Is It Important?

What is the “insured versus insured” exclusion in a directors and officers insurance policy and why is it important?

Insured v Insured language is included in almost all liability insurance policies.  A husband can not sue his wife for an auto accident under an auto insurance policy.  One owner can not be covered by insurance when he sues another owner.  A child can not sue her parents and have the family’s personal liability insurance cover it.

In the D&O policy the exclusion applies to a director suing another director.  The president of the corporation can not sue his chairman and expect insurance to cover it.

One liability policy that includes coverage for insured v insured is the employment practices policy.  Obviously the purpose of the insurance is to protect the insureds from suits brought by employees – perhaps an insured.  A Sr VP sues for harassment or wrongful termination, for example.

There are instances in a D&O policy where it is advisable to have the insured v insured exclusion limited.  Issues where a bankruptcy trustee goes after the directors should be insured as should instances where a board member is a whistleblower to a regulator.  Easily done in most cases with a request to your directors and officers insurer.