Link between insurances should not be overlooked: lawyer
Brokers may have to back up the directors’ and officers’ (D&O) cover of clients with professional indemnity (PI) insurance to cover them fully, an insurance lawyer has warned.
Sean Mullins, Special Counsel with law firm Jackson McDonald, told an Australian Insurance Law Association meeting in Perth last week that the term “professional” has a much broader definition in courts than it used to.
A standard exclusion in most D&O policies is for loss arising out of giving or failing to give professional services or advice.
“A person who is a director of a company which operates a business is a director by occupation,” Mr Mullins said. “As soon as he gives his advice or services in connection with the business of the company, while acting as a director, he could be said to be acting as a professional.”
He says the interlinking relationship between D&O and PI policies is often overlooked.
“The link is very much determined by the width of the exclusion in the D&O policy,” Mr Mullins told insuranceNEWS.com.au.
“If the D&O exclusion is narrow, the potential PI coverage is wider in the D&O policy. If the D&O exclusion is wide, the potential PI coverage is narrow.”
Mr Mullins says brokers acting on behalf of directors and officers should consider whether or not the business of the company is such that a PI policy should also be obtained.
“It highlights the fact that the PI exclusion in the D&O policy may have to be framed so as to have much wider effect, and prevent overlapping,” he said.
Sean Mullins, Special Counsel with law firm Jackson McDonald, told an Australian Insurance Law Association meeting in Perth last week that the term “professional” has a much broader definition in courts than it used to.
A standard exclusion in most D&O policies is for loss arising out of giving or failing to give professional services or advice.
“A person who is a director of a company which operates a business is a director by occupation,” Mr Mullins said. “As soon as he gives his advice or services in connection with the business of the company, while acting as a director, he could be said to be acting as a professional.”
He says the interlinking relationship between D&O and PI policies is often overlooked.
“The link is very much determined by the width of the exclusion in the D&O policy,” Mr Mullins told insuranceNEWS.com.au.
“If the D&O exclusion is narrow, the potential PI coverage is wider in the D&O policy. If the D&O exclusion is wide, the potential PI coverage is narrow.”
Mr Mullins says brokers acting on behalf of directors and officers should consider whether or not the business of the company is such that a PI policy should also be obtained.
“It highlights the fact that the PI exclusion in the D&O policy may have to be framed so as to have much wider effect, and prevent overlapping,” he said.