Conduct exclusion

The conduct exclusion is an exclusion in D&O (directors and officers) and E&O (errors and omissions) policies for deliberate fraud and improper personal profit. Article L. 113-1 of the French Insurance Code already bars insuring losses and damage caused by the insured's intentional or fraudulent misconduct. D&O and E&O policies add their own conduct exclusion, and its wording decides the executive's fate through years of proceedings. The standard wording targets two kinds of behavior. On one side, the deliberate fraudulent or dishonest act and the deliberate violation of a law or regulation. On the other, gaining a profit, remuneration or advantage to which the insured was not legally entitled. The trigger matters more than the list. A final adjudication clause applies only after a definitive, non-appealable decision in the underlying proceeding. Until then, the insurer advances defense costs, subject to repayment if the exclusion ends up applying. A wording that settles for misconduct “established in fact”, or a written admission by the insured, allows cover to be cut off much earlier. Absent a judgment, a settlement in principle leaves the exclusion with nothing to bite on. Severability does the other half of the work. One insured's conduct is not imputed to the others, so the director who knew nothing of the fraud keeps cover. For entity cover, Side C, only the conduct of a few named executives, often the CEO (chief executive officer) and the CFO (chief financial officer), is imputed to the company. French law is a separate question: even without the clause, Article L. 113-1 applies, but the insurer must prove intentional misconduct in the narrow sense the Cour de cassation gives it, or a dolosive fault, which the Second Civil Chamber treats as a separate notion (Cass. 2e civ., May 20, 2020, no. 19-11.538).