View source for Definition:Severability

📋 '''Severability''' is a contractual provision found in many [[Definition:Insurance policy | insurance policies]]—particularly [[Definition:Directors and officers insurance (D&O) | directors and officers (D&O)]], [[Definition:Errors and omissions insurance (E&O) | errors and omissions (E&O)]], and other [[Definition:Liability insurance | liability]] lines—that treats each [[Definition:Insured | insured]] person's application statements and obligations as independent from those of every other insured under the same policy. In practical terms, if one insured made a material [[Definition:Misrepresentation | misrepresentation]] on the [[Definition:Insurance application | application]], severability prevents the [[Definition:Insurance carrier | insurer]] from voiding coverage for innocent co-insureds who had no knowledge of or involvement in that misrepresentation.

⚙️ The clause operates by directing the insurer to evaluate each insured's knowledge, statements, and conduct separately when determining whether grounds exist to rescind or deny coverage. Consider a D&O policy covering an entire board of directors: if the CEO concealed a prior [[Definition:Securities claim | securities claim]] on the application, a severability clause would protect the remaining directors from losing their coverage because of the CEO's dishonesty. Some policies offer "full severability," which shields all innocent insureds including the corporate entity, while others limit severability to individual insureds only, leaving the [[Definition:Named insured | named insured]] organization exposed to [[Definition:Rescission | rescission]] based on any officer's misstatement.

💡 For [[Definition:Risk manager | risk managers]] and [[Definition:Insurance broker | brokers]] negotiating [[Definition:Management liability | management liability]] programs, the scope of the severability clause can be one of the most consequential coverage distinctions in the policy. A narrow or absent severability provision introduces the risk that an entire tower of coverage collapses because of one individual's bad act—a scenario that can leave dozens of innocent executives without defense funding in a [[Definition:Shareholder class action | shareholder class action]] or [[Definition:Regulatory investigation | regulatory investigation]]. Careful review during the [[Definition:Policy placement | placement]] process ensures the clause is broad enough to align with the organization's governance and exposure profile.

'''Related concepts:'''
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* [[Definition:Directors and officers insurance (D&O)]]
* [[Definition:Rescission]]
* [[Definition:Misrepresentation]]
* [[Definition:Named insured]]
* [[Definition:Application warranty]]
* [[Definition:Innocent insured provision]]
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