Overextended warranties: What policyholders should know to protect themselves from overbroad warranty statements

Business Insurance

When purchasing directors and officers liability insurance, policyholders are often asked to warranty that they are not aware of any facts that might lead to a claim under the prospective policy.

While such warranty statements are common in D&O underwriting, in recent years insurers have increased their efforts to aggressively use the warranties — which are often broadly worded — to deny coverage for almost any claim involving facts that predate the relevant warranty.

A December 2018 decision by the 2nd U.S. Circuit Court of Appeals in Patriarch Partners LLC v. Axis Ins. Co. highlights the importance of policyholders closely reviewing the precise terms and potential implications of any warranty statement they are asked to provide, and the risks they face when they provide broadly worded warranty statements to insurers.

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Gilbert LLP is a Washington-based law firm specializing in litigation and strategic risk management, insurance recovery and complex dispute resolution.