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.