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Insurance PolicyA frequently asked question is what is the purpose of an ‘Innocent Insured Clause’?   

The Innocent Insured Clause’s purpose is to provide coverage for individuals that are members of the firm for deliberate acts that normally would be excluded from coverage as long as those individuals had no knowledge and/or did not participate in the acts.  For instance, if one firm member embezzled client money, the embezzlement act would normally be excluded from coverage because it is a deliberate criminal act.  But there may be other members of the firm that are now being sued for malpractice that did not know or participate in the embezzlement.  The insurer would provide coverage for the other firm members that did not participate in the embezzlement.

The Wesco Insurance policies Innocent Insured clause is as follows:

“B.   Innocent Insured

Whenever coverage under this Policy would be excluded, suspended or lost because of the exclusion relating to dishonest, fraudulent, criminal or malicious act or omission by any person insured hereunder, the Company agrees that such insurance, as would otherwise be afforded under this Policy, shall be applicable with respect to an Insured who did not personally participate in such act or omission and otherwise complies with all terms and conditions of the policy.


The Company’s obligation to pay damages hereunder will be excess of the full extent of the assets of any Insured involved in such dishonest, fraudulent, criminal or malicious act or omission.”


This is a very common clause in almost all professional liability Insurance policies.  It is also a clause that is frequently litigated.


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