Gaps In Coverage When Switching Carriers

Switching insurance companies can result in a gap in coverage.

All policy holders, and especially companies purchasing Directors & Officers Liability coverage, need to be mindful of a major pitfall that can result when changing insurance companies. Most companies may have a Directors & Officers Liability policy which provides claims made coverage to its directors and officers. If the company switches to a new insurance company and obtains a new policy, the new Directors & Officers policy will often exclude claims based on actions that took place prior to the issuance of the new policy. If shareholders were to file suit based on a director’s misconduct during the prior policy period, the previous insurance company will deny coverage because the claim was not made until after that policy expired, and the new insurance company will deny coverage based on the exclusion for prior acts.

Similarly, policy holders need to be aware of changing from a claims made policy to an occurrence policy. As long as the policyholder continues to purchase claims made policies, there will always be coverage for a claim that is made. However, when a change is made to an occurrence policy, and a claim is made during the pendency of the occurrence policy for conduct that happened under the prior policy, that claim will not be covered under the occurrence policy. If the policy holder seeks to obtain coverage under the prior policy, the prior carrier will deny coverage because the claim was not made while that policy was in effect.