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For purposes of D&O insurance, the term “allocation” refers to the process of determining the amount of defense costs, settlements or judgments which is properly attributable or “allocated” to covered loss resulting from covered claims against insureds, on the one hand, and all other loss incurred by insureds, on the other hand. In essence, allocation simply refers to the process of determining the amount of insured loss when that loss is commingled with uninsured loss. The allocation process can result in a contentious claims handling environment if the policy does not adequately minimize the allocation uncertainties or if the insureds and insurer are not adequately forewarned of the allocation issues or are not reasonable in their allocation expectations.

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