priority of payments provision

The priority of payments provision refers to a provision found within most, but not all, directors and officers (D&O) liability insurance policies that sets forth the order in which policy proceeds will be paid out to the various insureds under the policy.

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The provision also states that policy proceeds are the property of the directors and officers, rather than a bankruptcy trustee. Priority of payments provisions were added to D&O policies because in the early 2000s, numerous controversies began to arise as to whether the proceeds of a D&O policy belong to a bankruptcy trustee or to the individual insured directors and officers.