In every organisation, small or big, the defined hierarchy of the hired workforce is liable for all the work done. However, if seen legally, all professionals need liability insurance to cover themselves against the damages caused to their consumers or target audience. For instance, those who manufacture products of some kinds buy liability insurance to stay safe in case their products end up harming the user or someone else.
Similarly, business owners purchase liability insurance that protects them against lawsuits filed by employees related to any mishap during work hours. Now think about the top level in the hierarchy of an organisation. There are directors on the board, who shoulder more significant responsibilities. Any unexpected lawsuit against them can cause severe personal losses. There are Directors and Officers (D&O) liability insurance to protect them all.
Let’s give you better insights about D&O liability insurance:
What is D&O Liability Insurance?
The Directors and Officers (D&O) liability insurance covers the directors and managers of an organisation against personal losses due to errors made while discharging their duties for the organisation. The claims of this insurance cover the legal fees that the organisation may have to suffer as a result of the lawsuits filed against their directors and officers by various stakeholders, be it employees, competitors, regulators, and others.
While most of these insurance policies exclude fraud and criminal offences, some insurers extend these policies to cover criminal and regulatory investigations or trial defence costs. The policies also include liabilities of the corporation as well as the personal liabilities for its directors and officers. Common exclusions to these policies involve intentional damage and contractual commitments related to the insured individuals.
Why is D&O Liability Insurance Significant for All?
Some of the prime reasons that make D&O liability insurance nearly necessary for the directors and officers in an organisation are as follows:
- Investigations from regulators
- Irregularities in the organisation’s accounts
- Corporate governance needs
- Several legal compliances
- Allegations from various stakeholders, which can involve sexual harassment or discrimination to name a few
- Exposure to claims made by the shareholders
Importance of D&O Insurance for Non-Profit Boards
It is more like a misconception to believe that only the directors and officers in for-profit organisations need D&O insurance. Contrary to it, even the directors and officers in non-profit organisations have considerable exposure to personal liabilities.
As per reports, there are around 2 million non-profit organisations in India. Most of the liabilities of directors and officers in the non-profits occur because of their lack of experience. They know less about their legal duties and responsibilities. Some directors are recruited by gauging their passion for the cause the organisation supports, not their expertise.
Even those who have some knowledge or experience prefer to follow the informal approach to deal with legal issues, thus making themselves more vulnerable. Their lack of sound knowledge and expertise about the right decision making as per their roles increases the risk of claims against their organisations.
In some cases, the compensation for just one claim can turn out to be much bigger than the cost of any insurance premiums for D&O insurance they would have paid otherwise. Hence, there are several right reasons why opting for D&O liability insurance protection is essential even for the non-profits.
What More Do You Need to Consider?
Indeed, the claims related to D&O policies can take different forms, depending on the level of risks an organisation face. Many of the duties and responsibilities of the board directors place them at the risk of allegations. For non-profits, it can be about the complaints or allegations on how they work for public relations, raise funds, and many others.
While it all makes it crucial to buy D&O insurance, you are advised to seek out an insurance broker with enough experience in this field, such as SecureNow. Its team of experts will help you cover the board of directors of your organisation in the best way possible.
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