Prior knowledge exclusion

The prior knowledge exclusion is a clause in claims-made policies that bars claims arising from facts or circumstances the insured knew of before inception or the continuity date. Article L. 124-5 of the French Insurance Code governs cover triggered by the claim. It carves out one case where the insurer owes nothing: where it proves that the insured knew of the harmful event on the date the cover was taken out. The prior knowledge exclusion in D&O (directors and officers) and E&O (errors and omissions) policies follows the same logic, in its own words. The standard wording bars any claim based on a fact, circumstance or situation that an insured knew of before the continuity date. It also requires that the insured could reasonably have expected it to give rise to a claim. The test has two limbs, subjective knowledge and an objective view of what a reasonable professional would have inferred. The reference date changes everything. A policy renewed without a break since 2015 keeps 2015 as its continuity date. A circumstance discovered in 2019 and notified to the insurer then stays inside the contract; switch carriers without carrying that date over, and the same knowledge becomes an exclusion. In a company, it soon comes down to who knew. An imputation clause often limits the knowledge that counts to that of the CEO (chief executive officer), the CFO (chief financial officer) or the general counsel. Severability, for its part, stops one informed executive from stripping cover from those who knew nothing. Without those two lines, the knowledge of a single manager can be held against the whole board. The exclusion overlaps with risk disclosure: the proposal form often carries a statement on known facts, and an inaccurate answer also brings Articles L. 113-8 and L. 113-9 into play.