‘Prior or Pending Litigation’ and ‘Prior Acts’ exclusions are both policy conditions that reference the time period before the policy begins and specify what the policy won’t cover. In this article, we review the distinction between these terms and discuss the implications of a Prior Acts Exclusion.
- Both ‘Prior or Pending Litigation’ and ‘Prior Acts’ exclusions reference the time before the policy begins and specify what the policy won’t cover.
- ‘Prior or Pending Litigation’ and ‘Prior Acts’ exclusions are very different in nature.
- Buyers and brokers need to understand the distinction between these two terms, what to look for in a policy, and the implications, especially for the Prior Acts Exclusion.
Prior or Pending Litigation exclusion
A policy with a Prior or Pending Litigation exclusion will not cover any litigation that is in process or that the insured has been notified of, or is aware of prior to the policy inception date or the ‘prior/pending date’. Unless specified otherwise, the timing of the wrongful act that gave rise to the claim is not at issue, just the timing of the claim itself or notice or knowledge of it.
Can you imagine an insurance company signing on to provide property coverage for a building that’s already on fire? Neither can we! Under a claims made policy, such as D&O or EPLI, insurance companies won’t offer coverage for litigation that an organization already knows about. Or, if the organization has recently switched insurance companies, about which they should have notified their previous insurance company.
Prior or Pending Litigation Exclusion Example:
Company ‘A’ decides to purchase a D&O insurance policy for the first time on December 1, 2018. They warrant to the insurance company that they don’t know of any circumstances which could give rise to a claim. Included within their insurance company’s standard policy is a ‘Prior or Pending Litigation’ date exclusion – it specifies December 1, 2018 – the date that first D&O policy came into effect.
Months later, on June 30, 2019, a lawsuit names the directors and officers of the organization. The lawsuit isn’t new. It was filed several years ago against the company and their insurance company was notified at the time. This is however, the first time the directors and officers are named.
Are the directors and officers covered under their new D&O policy?
Even though the directors and officers didn’t know of a claim where they were named when they first purchased the D&O policy, the insurance company denies the claim. The prior or pending litigation exclusion is absolute. The date that the original claim was filed against the company was prior to the date found in the prior or pending litigation exclusion.