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D&O Liability Insurance – Unscrupulous Conduct Exclusion – Final Adjudication

Legislation needs to be business friendly in letter and spirit. It cannot be complex and intimidating if business were to flourish, A study in 2022 by Observer Research Foundation and Teamlease RegTech stated that there are about  26,134 imprisonment clauses in India’s business laws. Given the magnitude and spread of these provisions, notwithstanding the recent steps of the Government of India to decriminalise some of them, it is quite possible Directors & Officers who act with integrity and best interest of all the stake holders may also land in problems at times and face litigation.

D&O liability insurance policy gives a sense of confidence to directors and officers. A good policy provides relief to directors and officers, who may, in spite of their best intentions and sound business practices, end up in some negligent acts – actual or alleged.

Is it that a director is always held liable for his actions? The answer is a NO. There are safeguards. As long as directors are well informed of their duties, responsibilities and obligations and discharge them professionally and without any ulterior motive keeping the interest of all stake holders, there is no problem. There are some inbuilt provisions  like Sec. 463 of the Companies Act 2013. But, when there is a need and opportunity to fall back on D&O insurance protection, coverage should not be ambiguous. Therefore, it is  vital to have a good understanding of the coverage and various exclusions. In this context, exclusion relating to “Unscrupulous / Fraudulent / Dishonesty Conduct ’ also merits a close look. In simple words, this exclusion denies coverage for liability arising from unscrupulous acts of the insured persons such as fraud, dishonesty, criminal acts or intentional misconduct.

While investigations are ordered on the allegations of unscrupulous conduct of the accused and proceedings commence, allegations levelled may not always be proved and finally the accused may be acquitted. Given the fact that litigation takes a lot of time in our country and is very expensive, it is necessary that coverage is obtained on “Final adjudication” basis under this exclusion. This is to ensure  that  allegations alone do not trigger the exclusion and exclusion operates only upon final adjudication in the matter.

Policy wordings may vary from insurer to insurer. The ideal way to get better protection here is to obtain coverage which makes reference only to “final adjudication” and not to admission of wrong doing by insured person. Further, the exclusion should get triggered only upon a “final non appealable adjudication,” or a “judgment after the exhaustion of all appeals,” and not merely on the basis of a judgment by any court or order in any proceedings. For better insights into this matter, please see the judgment in MITCHELL J. STEIN VS AXIS INSURANCE COMPANY here.

Whilst on this subject, it is necessary to have clear and unequivocal coverage provisions relating to severability, non-imputation, payment of emergency costs and advancement of defence costs clauses under the policy so that the coverage is adequate and responsive lessening burden on personal assets of directors and officers.

P. Umesh
Consultant – Liability Insurance

Disclaimer: The information contained and ideas expressed in this article represent only a general overview of subjects covered. It is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. Insurance buyers should consult their insurance and legal advisors regarding specific coverage and/or legal issues. 


    1. https://cases.justia.com/california/court-of-appeal/2017-b265069.pdf?ts=1491519631
    2. https://www.huntoninsurancerecoveryblog.com/2017/03/articles/d-and-o/do-policys-final-adjudication-provision-requires-more-than-a-trial-court-judgment/
    3. https://www.orfonline.org/wp-content/uploads/2022/02/ORF_Monograph_JailedForDoingBusiness_Final-New-11Feb.pdf
    4. https://www.moneycontrol.com/news/business/sebi-may-soon-start-criminal-prosecution-of-market-offenders-report-9282911.html