1. Forms
2. MP
3. MP-00-02

What the Form Is

ISO Form MP 00 02, the Executive Liability and Entity Securities Liability Coverage Form, is a type of management protection insurance. It offers liability coverage on a "claims-made" basis, meaning the policy in effect when a claim is first made is the one that responds, regardless of when the wrongful act occurred (provided it's after any specified retroactive date). This form typically provides three main insuring agreements: Coverage A for non-indemnified executive liability (direct coverage for directors and officers), Coverage B for organization reimbursement (covering the company when it indemnifies its directors and officers), and Coverage C for Entity Securities Liability (covering the company itself for claims related to its securities). A key feature is that the costs associated with defending a claim are usually included within, and therefore reduce, the overall limit of liability.

Classes of Business It Applies To

This form is designed for a variety of organizations, including:

• Publicly traded companies, which have significant exposure to securities claims from shareholders.
• Private companies, particularly larger ones or those contemplating an initial public offering, merger, or acquisition, which can also face D&O and securities-related lawsuits.
• Non-profit organizations, although their securities exposure might differ, they still face governance and management liability risks.

Real-world examples:

• A publicly traded company is sued by shareholders after a stock drop, alleging misleading financial statements.
• Directors of a private company are sued by a competitor for alleged unfair business practices following a major strategic decision.
• A company faces a regulatory investigation into its securities disclosures.

Special Considerations

• Claims-Made Nature: The timing of when a claim is made and reported is critical. Policies will have a specific retroactive date, and acts occurring before this date are generally not covered. Extended reporting periods ("tail coverage") may be available or necessary when coverage ceases.
• Defense Within Limits: Legal defense costs can be substantial and will erode the policy's aggregate limit of liability. This means less money may be available for settlements or judgments.
• Allocation: Claims may involve both covered and non-covered matters, or multiple defendants some of whom are not insured. The policy will contain provisions on how defense costs and settlements are allocated in such situations.
• Entity Coverage Impact: The inclusion of Coverage C (Entity Securities Liability) means the policy limits are shared across claims against the directors and officers and claims directly against the company for securities matters. This could potentially exhaust limits faster.
• Exclusions: Policies will contain various exclusions, such as for acts involving personal profit or advantage, illegal activities, claims existing before a certain date (prior acts), bodily injury or property damage (typically covered by general liability), ERISA-related claims, and pollution.
• Cancellation: The MP 00 02 form itself may not detail cancellation provisions; these are often found in a separate Common Policy Conditions form (like MP 00 03) or an amendatory endorsement.

Key Information for Agents and Underwriters

• Thorough Risk Assessment: Underwriters need to meticulously evaluate the applicant's financial condition, corporate governance practices, industry-specific risks, litigation history, and the experience and reputation of its directors and officers.
• Application Integrity: The insurance application is a crucial document. Full and accurate disclosure is essential, as misrepresentations can lead to denial of claims or rescission of the policy.
• Limit Selection: Agents should guide clients in selecting appropriate limits of liability, considering the organization's size, type (public, private, non-profit), market capitalization (if public), industry, and potential severity of claims. The impact of defense costs on limits should be a key discussion point.
• Retroactive Date Management: Ensure continuity of coverage when moving from a prior claims-made policy. Any gap in coverage could leave the insured exposed.
• Policy Definitions: Pay close attention to key definitions within the policy, such as "Claim," "Wrongful Act," "Loss," and "Insured Person," as these define the scope of coverage.
• Endorsements: The base form can be modified by various endorsements to tailor coverage to the specific risks of the insured. Understanding available endorsements is vital for providing comprehensive advice.