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Severability Provision In Directors And Officers Applications

Severability Provision in Directors and Officers Applications

Definition

A provision in an application for directors and officers (D&O) liability insurance stating that knowledge of material, false statements in the application that is possessed by one insured will not be imputed to other insured(s). For example, if one insured was aware that a coverage application contained false financial data, this knowledge—which would ordinarily bar coverage—will not be attributed to any other insureds who had no knowledge that the financial statements were false. As a result, these so-called innocent insureds will have coverage under the policy. Most D&O insurers offer what is known as a "full severability provision" within their application forms, which is advantageous for insureds. However, a significant minority of insurers use what is known as a limited severability provision, which is not nearly as favorable for policyholders.

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