What relationship does entity coverage have to the issue of allocation?
Entity coverage prevents the insurer from seeking to allocate the expenses of litigation between covered and uncovered parties. Suppose that a company buys a D&O policy without entity coverage, and suppose that a securities fraud lawsuit is filed against the company and its CEO. The claim against the CEO would likely be covered by the policy; the claim against the corporation would not be covered. The insurer might assert that half (or some greater or lesser percentage) of the cost of defending the claim is not covered by the D&O policy, because half of the defendants are not insured. If the company had purchased entity coverage, both the CEO and the corporation would likely be covered by the policy, and no allocation issue would arise.
