Outside directorship liability (ODL)

Outside directorship liability (ODL) cover is a D&O (directors and officers) extension that covers an executive who sits, at the company's request, on an outside entity's board. The policyholder asks its CFO (chief financial officer) to sit on the board of a trade federation, a foundation or a joint venture it does not control. The D&O policy does not follow him there automatically: it covers the directors of the policyholder and its subsidiaries, most often defined by control, above 50% of voting rights. In market shorthand, ODL extends insured status to a person holding a board seat in an outside entity at the express request or with the consent of the policyholder. The standard wording separates two groups. Nonprofit organizations are often covered automatically. Uncontrolled commercial companies usually have to be listed by endorsement. The cover sits in excess. The indemnity the outside entity owes its directors pays first, then that entity's own D&O policy, and only then the group's policy. If the outside entity refuses to indemnify when it was permitted to, some wordings make the policy respond as if indemnification had taken place, with the retention that applies to Side B. The most common exclusion targets a claim by the outside entity itself, or by its directors, against the insured, on the model of the insured versus insured exclusion. It usually carries carve-backs for derivative actions and for claims by a liquidator. The local industry association or business club looks harmless, until a collective layoff or a treasurer's embezzlement.