1. Forms
2. MP
3. MP-04-01

What the form is

MP 04 01, titled "Coverage Extension–Outside Service," is an endorsement to a Management Protection insurance policy. Its primary function is to broaden the policy's coverage to include insured individuals (such as directors, officers, or employees) of the named organization when they are serving in a capacity at an outside entity, provided that this service was undertaken at the formal request of the named insured organization. A key feature of this extended coverage is that it generally applies on an excess basis; this means it will only pay out after any indemnification or insurance coverage available from the outside entity has been exhausted.

Classes of business it applies to

This endorsement is pertinent for a wide range of organizations whose executives, directors, or other insured persons are requested or required to serve on the boards or in similar leadership roles for other entities. Real-world examples include:

• Corporate Structures: When a parent company directs an executive to serve on the board of a subsidiary, joint venture, or affiliated company. For instance, a CFO of a technology firm being asked by their company to serve on the board of a newly acquired startup.
• Non-Profit and Community Involvement: When a company encourages its leadership to serve on the boards of non-profit organizations, charitable foundations, or industry/trade associations as part of its corporate citizenship or strategic outreach. For example, a company partner being asked to join the board of a local chamber of commerce.
• Customer or Supplier Relationships: In some instances, a company might request an employee to serve on a board of a key customer or supplier to strengthen business relationships, although this is less common and requires careful underwriting.

Special considerations

Several important factors should be considered when utilizing or underwriting this endorsement:

• "At the Request Of" Requirement: This is a fundamental condition. The service at the outside entity must be explicitly requested by the named insured organization. This request should be formally documented (e.g., in board minutes or a formal letter) to avoid ambiguity in the event of a claim.
• Excess Nature of Coverage: It is crucial to understand that this endorsement provides excess coverage. The outside entity's own D&O insurance and indemnification provisions are primary. The MP 04 01 endorsement will only respond after those primary resources are depleted.
• Scope of Outside Entity: The type and risk profile of the outside entity are significant. Service on the board of a financially unstable company, a company in a litigious sector, or a pre-IPO company carries different risks than service on the board of a stable, well-established non-profit.
• Exclusionary Language: The endorsement or the main policy may contain exclusions related to certain types of outside entities or activities. For example, coverage for service with publicly traded companies might be restricted or require specific underwriting.
• Not a Replacement: This endorsement is not a substitute for the outside entity maintaining its own adequate D&O liability insurance.
• Applicability: This endorsement is designed for use with most Management Protection Policy Coverage Forms, with specific exceptions like the MP 00 07 noted in ISO guidelines.

Key information for agents and underwriters

Agents and underwriters should focus on the following practical aspects:

• Risk Assessment: Underwriters must thoroughly evaluate the potential exposure introduced by these outside directorships. This includes assessing the financial health, industry, litigation history, and governance practices of the outside entities. The number of outside positions held by insureds is also a factor.
• Documentation and Process: Agents should advise insureds to establish and maintain a formal process for requesting and documenting outside service by their personnel. This documentation is vital at the time of a claim.
• Coverage Gaps and Limits: Agents need to clearly explain the excess nature of the coverage and discuss potential scenarios where the outside entity's insurance might be insufficient or unavailable (e.g., insolvency of the outside entity or its insurer). Ensure the limits provided by the endorsement are adequate in relation to the potential exposure.
• Pricing Considerations: The premium for this endorsement will likely be influenced by the number of outside directorships, the nature and risk profile of the outside entities, and the limits of liability requested.
• Underwriting Information: Underwriters may require a list of all outside entities where insureds are serving at the company's request, along with details about those entities.
• Defining "Wrongful Act": Ensure clarity on how a "Wrongful Act" is defined in the context of service to an outside entity and how it aligns with the main policy's definitions.