Often Overlooked: Entity Coverage

In 88 percent of the lawsuits experienced by the respondents to the Tillinghast-Towers Perrin survey, the organization itself was named as a co-defendant.⁴ In cases like these where alleged wrongful acts were committed by the employees of an organization and not the directors or officers, your client's D&O coverage will not apply -- unless your client elects to purchase entity liability coverage. Read this article in a printer-friendly format.

Coverage for non-directors and officers

Entity liability coverage responds if a business-related wrongful act is allegedly conducted by someone who is not a director or officer of the firm. For example, if a sales representative deliberately defames a competitor and the competitor sues your firm for monetary damages, entity coverage would respond.

Entity coverage is also important if the organization becomes insolvent and is unable to indemnify its directors and officers. Entity coverage helps to ensure that directors and officers are indemnified as promised.

Decrease the possibility of coverage gaps

Purchasing Entity Liability coverage in conjunction with D&O coverage reduces the possibility of potential coverage gaps and uninsured claims allocation issues. When D&O coverage is purchased without entity coverage and a claim is brought against both the organization and its directors and officers, it is left to the insurer to determine how costs will be divided between the uninsured entity and the insured directors and officers. Entity liability coverage helps to prevent these kinds of allocation issues.

Footnotes: ⁴ Tillinghast-Towers Perrin, 7.