The insured vs insured exclusion explained

Reviewed by Matthew Bartlett, Director, Apex Insurance Brokers Limited · Last reviewed 2026-08-05

What the exclusion actually says

An insured vs insured exclusion (sometimes written "one insured against another") tells the insurer not to pay a claim where the person or entity bringing the claim, and the person or entity defending it, are both covered under the same policy. In a directors & officers (D&O) or management liability policy, the "insureds" typically include the company and every director, officer and senior manager named or defined in the wording.

So if the company sues one of its own directors, or one director sues another, the claim can fall squarely inside the exclusion, even though the individual would normally expect the policy to defend them.

The clause exists because insurers want to fund defence against genuinely external, adversarial claims, not internal disputes where the two "sides" share an interest in extracting money from the policy. Without the exclusion, a board could, in theory, arrange for the company to sue a friendly director, admit liability quietly, and have the insurer settle the bill.

Why co-insured claims get blocked

The mechanism is collusion risk. Because the company and its directors are aligned in ownership and control, a claim between them lacks the natural check that exists between genuine strangers. Insurers price and reserve for adversarial litigation; they do not want to underwrite what is effectively a transfer of money from the insurer to the insured group with no real dispute behind it.

The exclusion is therefore blunt by design. It usually bites on the identity of the parties, not on whether the specific claim is actually collusive. That is why an entirely honest, well-founded claim by a company against a rogue director can still be caught unless a carve-back applies.

The carve-backs that give cover back

A well-drafted UK D&O or management liability policy rarely applies the exclusion to everything. It carves out categories of claim where the collusion concern does not realistically arise. Common carve-backs include:

• Derivative claims – a claim brought on the company's behalf by a shareholder against a director, including derivative claims under the Companies Act 2006, where the claimant is genuinely independent of the defendant.
• Insolvency claims – claims pursued by a liquidator, administrator or other office-holder under the Insolvency Act 1986, because that person acts independently of the former board.
• Employment claims – a claim by a director or employee about their own employment, such as wrongful dismissal, is often expressly preserved.
• Former directors and officers – some wordings restore cover for claims brought by an individual who left the company more than a stated period (for example, two or four years) before the claim.
• Whistleblowing and cross-claims – a claim brought by an insured for protected whistleblowing, or a defensive cross-claim, may be carved back.

The exact list varies enormously between insurers and wordings. Two policies advertised as covering the same risk can treat an identical dispute in opposite ways, purely because of how their exclusions and carve-backs are drafted.

Where you will and won't meet it

The exclusion is closely associated with D&O and management liability cover, where multiple insureds sit inside one policy. It is far less common, and often absent, in a standalone professional indemnity (PI) policy that insures a single firm against third-party client claims, because there the claimant is by definition an outsider.

It becomes relevant to PI-style cover chiefly in combined management liability or professional risks packages, and in group or partnership structures where several related entities are insured together. If your practice buys a bundled policy, it is worth checking whether an insured vs insured clause has come along with the D&O section.

What to check in your wording

Because the outcome turns on drafting, a few practical checks matter more than the headline cover limit, whether that is £1m, £2m, £5m or higher:

• Who is defined as an "insured"? The wider the definition, the more internal claims the exclusion can reach.
• Is there a derivative-claim carve-back, and does it require the claimant to be genuinely independent?
• Are insolvency office-holder claims expressly preserved?
• Is there a former-director carve-back, and what waiting period does it use?
• Does an employment carve-back protect wrongful dismissal and similar claims?

If any of these are missing or narrow, a real internal claim could leave a director personally exposed. Talking it through with a broker before you bind is far cheaper than discovering the gap at claim stage. You can start a quote and review with Apex and we will flag the exclusions that matter for your structure.

Common questions

Does the insured vs insured exclusion apply to professional indemnity?

Rarely on its own. A pure PI policy covers claims from outside clients, so the parties are not co-insureds. It becomes relevant in combined management liability or professional risks packages that also carry a D&O section.

Can a liquidator's claim against former directors still be paid?

Usually yes. Most UK D&O wordings carve back claims brought by an insolvency office-holder, such as a liquidator or administrator, because that person acts independently of the old board. Always confirm the specific carve-back in your policy.

Why would an insurer refuse an honest internal claim?

The exclusion typically works on who the parties are, not on whether the claim is genuine. A perfectly legitimate claim by a company against a director can be caught unless a carve-back restores cover, which is why the drafting deserves close attention.

Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority (FRN 724952). This guide is general information, not advice on a specific policy or a substitute for your policy wording.