Directors' & Officers' Liability Insurance: The Issue of "Non-Indemnifiable Loss"[1]
By Donna Ferrara (2004)

I. INTRODUCTION

For anyone who has been living on a desert island, there is a crisis in Directors' & Officers' Liability Insurance ("D&O")[i].' It was a long time coming. One carrier's website reports dismally that in 2001, rates had dropped to half of their level in 1996, while D&O exposure had grown by one thousand percent[ii]. After ten years of increasing claims frequency and severity, resulting in dismal profitability, D&O insurers decided to raise prices and narrow coverage.
In an effort to return sagging lines of coverage to profitability, carriers have raised premium levels considerably, a fact that no insurance professional has missed. In addition, insurers are limiting coverage. Certain policy amendments, such as the elimination of entity coverage and the imposition of co-insurance are obvious. Others, such as the use of "Non-Indemnifiable Loss" in conjunction with presumptive indemnification, are less so.

II. WHAT EXACTLY IS A "NON-INDEMNIFIABLE LOSS"?

A number of policy forms use the term non-indemnifiable loss, either to set a trigger of coverage or to define its scope. The term is most often defined as any loss that is not indemnifiable. "Indemnifiable" is defined as "[l]oss for which an Organization has indemnified or is permitted or required to indemnify an Insured Person pursuant to law or contract or the charter, bylaws, operating agreement or similar documents of an Organization."[iii]
To this point, the language is similar to that found in D&O policies for years. The section continues as follows:
For the purposes of determining whether Loss constitutes Indemnifiable Loss, the Organizations shall be conclusively deemed to have indemnified the Insured Persons to the to the maximum extent that an Organization is permitted or required to provide such indemnification pursuant to law, common or statutory, or contract or by the