Order of payments clause (D&O)

A directors' liability policy shares a single limit among several parts: direct indemnity of directors, reimbursement of the company that indemnified them, and cover for the company itself for certain litigation. When several claims exhaust the limit, the question of order becomes decisive. The order of payments clause answers it by setting a hierarchy: sums owed to individual directors not indemnified by the company are paid first, then the company's reimbursement, then its own cover. It thus protects the policy's primary purpose, the directors' personal wealth. Its importance shows in insolvency: administrators may argue that the policy, or the company's right to its proceeds, forms part of the estate to be distributed among creditors, and seek to freeze payments. The clause, combined with a limit dedicated to individuals only, serves to show that the policy's proceeds benefit individuals first, which courts accept more readily when the wording is explicit.