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Welcome to the Pride,

Insurance coverage for directors and officers isn’t about what’s included.
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​It’s about what’s quietly excluded. ​
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One ambiguous clause. One outdated provision. And the protection you thought you had can disappear when it matters most.

We’ve seen seemingly ironclad D&O programs fall apart under pressure—exposing executives to seven-figure claims.

Even global FI giants haven’t been immune.

In this edition, we’re walking you through the five most dangerous blind spots we see in financial institution D&O programs.

These aren’t technicalities.

They’re real-world exposures that can devastate careers, derail balance sheets, and leave leadership holding the bag.

We’ll show you:

• The fraud exclusion trap that leaves executives personally liable
• Allocation provisions that quietly shift costs back to the insured
• Hammer clauses that force you into lowball settlements
• Application language that can void your entire policy
• The nominal defendant gap that leaves the company unprotected

And most importantly: how to structure around all of them.

The D&O Protection Gap Most Financial Institutions Miss

Imagine this:
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​You’re facing a securities class action or regulatory inquiry.
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You’ve got a policy in place.

You assume you’re covered. But when the claim hits, your insurer points to a clause you never noticed. Suddenly, you’re exposed.

That’s exactly what happened to Max Ary, former president of the Kansas Cosmosphere and Space Center.

When fraud charges emerged, Ary assumed his D&O carrier would handle the defense.
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But vague exclusion language allowed the insurer to deny coverage without a final judgment.

The court upheld the denial.

Ary was left footing the entire legal bill himself.

We see similar dynamics play out with financial institutions. Especially when D&O language hasn’t been stress-tested against today’s claim environment.

Most CFOs and GCs focus on limits, premiums, and broker relationships.
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Yet when it comes to D&O, the real risk is in the wording.

Why Your D&O Policy Is Probably More Vulnerable Than You Think

These coverage gaps don’t just impact financial statements, they shape careers.

When coverage fails, the damage ripples across:

• Personal wealth: Executives risk losing homes, savings, and future income
• Reputation: Claims exposure can weaken stakeholder trust and market credibility
• Operations: Leadership time gets consumed by litigation, not growth
• Career trajectory: Claims history follows you, so does a failed defense strategy

➤ For Risk Managers, the nightmare is realizing your team chose the wrong broker—after the claim hits.
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➤ For GCs, it’s knowing a protective provision was available in the market—and didn’t make it into your program.
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➤ For CFOs, it’s restating earnings under scrutiny and triggering coverage issues on the policy you approved.

These aren’t theoretical problems.

They happen when D&O is treated like a transaction instead of a structured risk asset.

We understand how to position your risk management approach to protect your personal assets. Contact us for a review of your current program.

The 5 Biggest Gaps in D&O Contracts & How to Fix Them

1. The Fraud Exclusion Trap

Most D&O policies exclude fraudulent conduct.
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That’s standard. The real danger lies in how “fraud” is defined—and whether the policy requires a final adjudication.

Ary’s policy didn’t. Coverage was denied before any court ruling.

✅ Protective language requires a final, non-appealable judgment
​ ❌ Risky language allows denial based on mere allegations

Without precise fraud wording, your policy can walk away before a verdict is ever reached.

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2. The Allocation Provision Problem

When both the entity and individuals are named in a suit, how your policy allocates costs matters—a lot.

PepsiCo learned this the hard way when its D&O carrier allocated most of a $22M settlement back to the company, citing “relative exposure.”

While PepsiCo is a commercial giant, this became a pinnacle case for all industries, and it spotlighted how allocation clauses can quietly shift liability in high-stakes litigation.

✅ Protective language emphasizes fairness and cooperation in allocation
​ ❌ Risky language gives insurers latitude to shift responsibility

Don’t let allocation clauses quietly transfer millions of liability back to the balance sheet.
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3. The Hammer Clause Danger

Some D&O policies penalize executives for refusing insurer-recommended settlements.
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Even if they’re reputationally damaging.

Desa Ballard faced this when her carrier invoked the hammer clause after she declined to settle a baseless claim.

✅ Protective language ensures partial coverage remains even if a settlement is declined

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​ ❌ Risky language limits insurer liability once a deal is rejected

Without hammer clause protection, the policy itself becomes the hammer.
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4. The Materiality Standard Risk

Application language can come back to haunt you.
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If materiality isn’t clearly defined, even honest mistakes can void coverage.

Anton Curanovic’s home insurance was rescinded over application inconsistencies. The same legal logic applies to D&O.

✅ Protective language narrows what qualifies as material misrepresentation

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​ ❌ Risky language gives insurers wide leeway to rescind policies retroactively

Your D&O program shouldn’t hinge on an unintended error in a multi-page application.

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5. The Nominal Defendant Coverage Gap

Derivative suits name the company as a “nominal defendant”—but most D&O policies don’t cover the entity in that role.

After Blue Bell Creameries’ listeria-related lawsuits, the company was left paying its own defense costs.

✅ Protective language includes nominal defendant coverage for derivative suits

❌ Standard forms often exclude this exposure entirely

Even when the company isn’t the target, it still gets stuck with the bill—unless the policy is built to handle it.

Ready to Bulletproof Your D&O Coverage? Contact us to schedule a 1:1 call to review your current D&O program.

Strong D&O Isn’t Off-the-Shelf

These flaws exist in D&O programs placed by big-name brokers at big-name institutions.

We’ve reviewed them. We’ve fixed them.

The difference isn’t the policy—it’s the structuring.

Our team at LION Specialty applies specialist scrutiny to every word of every contract. We’ve:

• Reviewed and negotiated 1,200+ financial institution D&O programs
• Adjusted $250M+ in claims
• Built programs that outperform in real-world litigation

This isn’t about buying a product. It’s about building protection that performs.

Want to learn more? Contact us for a review of your current program.

The Bottom Line

If you're a director or officer at an FI - your personal assets are on the line.

If you want to take a deeper dive…

…we created the D&O Contract Vigilance Blueprint. It's a 5-day email course to help you:

• Secure better D&O insurance.
• Learn how to avoid common policy mistakes and identify overlooked coverage gaps.
• Protect your personal assets.
• Understand your potential liability and take steps to mitigate your risks.

​>>> Get the D&O Contract Vigilance Blueprint​

Don't wait until a claim hits to find out you're under-protected.

Thank you for reading today's edition!

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Simply copy-and-paste the link below: ​

​http://lionspecialty.ck.page/posts/if-your-d-o-has-these-5-gaps-your-personal-wealth-is-exposed​

Most brokers stop at placing coverage.

We structure it—down to the word.

Our clients don’t buy policies.

They buy peace of mind.
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If you’re ready to structure with precision, we’re ready to help.
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Stay covered,
Natasha & Mark​
​Co-Founders & Managing Partners
LION Specialty

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