What is Covered Under Directors and Officers (D&O) Liability Insurance (1)

What is Covered Under Directors and Officers (D&O) Liability Insurance?

Directors and officers liability insurance primarily covers the personal liabilities of company’s most important person. Read more to know the details of its coverage.
What is Covered Under Directors and Officers (D&O) Liability Insurance (1)
In today’s dynamic market environment, every company is exposed to high degree of claim risks irrespective of its size. Individually, decisions are taken by key people like directors and officers of the company hugely affects its business practices and the overall performance. Hence, they are more vulnerable to third-party claims which may put their assets at stake. The third party can be customers, vendors, employees, creditors, competitors, regulators and shareholders. Hence, D&O insurance is the need of every profit-making as well as non-profit making organisation.

What is Directors and Officers Liability Insurance?

D&O insurance is a type of liability insurance which is designed to safeguard organisation’s key people involved in decision making against any third party claims arising as a result of their ‘wrongful act’ done in the managerial capacity. The policy also extends security to the organisation against security claims.

What do the Directors and Officers Liability Insurance Cover?

Directors and Officers Liability insurance covers defence cost, investigation cost, administrative cost, negotiation and settlement cost of all the covered claims. Coverage structure of the policy involves multiple layers. Following covers are offered by D&O policy.

  • Directors and Officers Liability Cover: When the organisation is financially unable to indemnify its directors and officers against third party claims, D&O policy protect them individually. Some of the charges that are covered under this are-
  • Lawsuit charges related to misrepresentation and misleading statements made by directors and officers.
  • Legal charges relating to neglect, error and wrongful trading
  • Sexual harassment charges and other related allegations on the grounds of breach of conduct
  • Lawsuits relating to wrongful termination and discrimination on the grounds of breach of employment
  • Bankruptcy-related litigations

D&O liability insurance policy covers legal heirs and representatives of directors and officers in case of insolvency and death of the insured.

  • Corporate Reimbursement Cover: D&O insurance reimburses the organisation for the claims it has paid to the third party on behalf of its directors and officers.
  • Securities Claims Coverage: Coverage to the organisation itself against the security claims. The financial loss of the organisation in respect of security claims are covered. It secures company against lawsuits arising out of purchase and sale of its securities. The policy covers shareholder’s litigations against the company and its key people involved in managerial decisions.

The Director and Officer means

  • Any person who is a past, current or future director, officer, member of the board of managers, management committee member, supervisory board member, management board member or governor of the company duly elected in under the laws.
  • Any person who is past, current or future de facto director or officer or shadow director of the company
  • Any employee who is past, current or future corporate general counsel of the organisation
  • Any director or officer as defined above is a past, current or future member of organisation’s internal compensation committee, internal audit committee or any other internal committee of the organisation.
  • A person named as prospective director in the prospectus or listing particulars of the company issued for public offerings.

Conclusion

Directors and officers liability insurance provide coverage against the wide range of claims that can be made against directors and officers. Insurance companies do offer D&O policies with flexible coverage in many layers. The product can be structured as per the specific need and requirement of the insured. Policy coverage limit can be decided based on the size of the company, industry environment, some top management and many other aspects. Choose the coverage wisely and structure the policy as per the need.