There is a common misconception that claims for intentional conduct are not covered under your insurance policy. In fact, insurance policies commonly provide coverage for intentional misconduct. For example, directors and officers liability insurance policies often provide coverage for securities fraud and breach of fiduciary duty, and employment practices liability policies often provide coverage for claims alleging discrimination and wrongful termination. Many policies do, however, contain exclusions for fraud or dishonesty. Here are three tips to ensure coverage is as broad as possible:
- Make sure that the language of any dishonesty exclusion specifically identifies the conduct that will be excluded. The exclusion should not bar coverage for “reckless” or “criminal” conduct, as that could limit coverage for a variety of common claims.
- The application of any dishonesty exclusion should be tied to a final adjudication in the underlying case. Including this language will help preserve coverage for defense costs and possibly settlements, and help avoid a scenario where you are relitigating the merits of the underlying claim in a subsequent coverage suit.
- Include a severability clause in any dishonesty exclusion so that the exclusion only applies to a bad actor. This way, the exclusion does not bar coverage as to any innocent insureds.