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8 D&O DEFENCE COSTS COVER AND ALLOCATION

Directors' and Officers' Liability Insurance

Page 151 8 D&O DEFENCE COSTS COVER AND ALLOCATION I. INTRODUCTION: DEFENCE COSTS COVER 8.01 A D&O policy’s primary function is to offer financial protection to directors and officers. 1 Defence costs cover is one of the most important aspects of D&O insurance and is a topic of major importance to both assureds and insurers. The availability of such cover means that assureds are guaranteed access to (hopefully good) lawyers to fight or settle the claim if the company does not come to their rescue. Meanwhile, insurers benefit from the fact that the fund in respect of defence costs may assist directors in avoiding liabilities in respect of which the insurer would otherwise be obliged to provide indemnity. There is a close relationship between liability insurance and defence costs insurance, to the extent that some jurisdictions take the view that liability insurance cover automatically embraces defence costs cover unless the parties agree otherwise. 2

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