Despite 'Any Insured' Exclusion, D&O Insurer Exposed As If No Exclusion at All

No one likes uncertainty, particularly those in the insurance industry. Insurers and underwriters should therefore be wary of general severability (or nonimputation) clauses that have the potential to strip any meaning from an exclusion that would otherwise serve to exclude coverage for all insureds. To avoid any uncertainty, a severability clause, if one must exist, should reference a specific provision or condition of the policy and one that is not expressly in conflict with the severability provision itself. Exclusions applying to “any insured” unambiguously exclude coverage for all, including innocent insureds. Therefore, the majority of courts generally uphold that interpretation even in the face of a severability provision found elsewhere in the policy. What happens, however, when the policy contains a general severability clause, or the clause is found within the exclusion itself? 

Imagine this: Your insureds, a corporate entity and its three officers, have just been sued for breach of fiduciary duty and fraud related to dubious acts that predate the D&O policy period. The allegations alone indicate prior knowledge by one of the three officers, all of whom, along with the insured entity, have made a claim for coverage. “Obviously excluded,” you think to yourself after reading the first paragraph of the clear prior knowledge exclusion, which excludes from coverage any claim based on any act, error, or omission, of which, as of the inception date of the policy period, any insured had knowledge and had reason to believe might give rise to a claim. Continuing to read the policy while also beginning to craft the declination letter in your mind, you reach the final paragraph of the same prior knowledge exclusion: