A provision in an application for directors and officers (D&O) liability
insurance stating that knowledge possessed by any insured persons, other than
the signer of the application or certain executive officers (usually the CEO,
COO, and CFO), will not be imputed to other insureds in a claim situation. For
example, if an insured were aware that a coverage application contained false
financial data, this knowledge—which would ordinarily bar coverage in a claim
situation—will not be attributed to any other insureds who did not know that
the financial statements were false. As a result, these so-called innocent insureds
will have coverage under the policy. However, if either the signer of the application
or one of the three executive officers had knowledge of the false data, their
knowledge would be attributed to the innocent insureds, and coverage would be
barred for the "innocent insureds" as well. A limited severability provision
is much less favorable for insureds, compared to a full severability provision.
However, only a minority of insurers' application forms contain limited severability
provisions. See also
in directors and officers applications.