Directors Officers Liability Insurance

Directors and Officers Liability Insurance, also called Directors Liability Insurance or D&O Insurance Coverage, is a liability insurance which protects the directors and officers (executives) of a company and their spouses, against the personal liabilities arising due to any legal action taken against them by employees, vendors, investors, competitors, customers or other parties for their action in their managerial capacity. A directors and officers liability insurance coverage can also provide for the legal fees and other costs the organization may incur as a result of such a suit.

Directors and Officers Policy is required to protect directors & officers of a company from personal losses which may arise due to decisions and actions taken by them as a part of their duties. Such risks include:

• Breach of fiduciary duty
• Customer suits
• Misrepresentation of company’s assets
• Misuse of company’s funds
• Failure to comply with workplace laws
• Sexual Harassment and Discrimination Allegations
• Accounting irregularities
• Other stakeholder claims, etc.

There are three types of insuring agreements of a D&O policy:

• Side A: Covers directors & officers of a company where the company does not pay or is financially unable to pay for indemnification of them. Under this type, an individual officer is insured whereas his/her personal assets are at risk.
• Side B: Covers directors & officers of a company where the company grants indemnification to them. In this case, the policy reimburses the legal costs to the company. Under this type, the company is insured and corporate assets are at risk.
• Side C: This side-coverage is also called ‘entity-coverage’ and it provides coverage to the corporate entity itself. Under this type, the company is insured and corporate assets are at risk.

Directors liability insurance provides financial protection to the company in case of a claim against their directors, officers and key employees for an alleged wrongful act in a managerial or supervisory role. It provides coverage for defense costs, subsidiaries, outside directorship, retired directors, employment practice liability, regulatory crisis response, damage to reputation, heirs, estates and legal representatives, emergency costs, kidnap response; and so on. Any entity with a corporate board or advisory committee should consider buying a D&O Liability insurance, including non-profit organizations as this policy saves from unforeseen financial losses arising due to third-party liabilities.

Directors & Officers liability insurance policy offers numerous benefits. Some of the key benefits of this policy is that it provides cover for:

• Defense costs
• Shareholder actions
• Inaccurate or inadequate disclosure
• Creditor claims
• Employment practices and HR issues
• Competitor claims
• Corporate manslaughter
• Breach of fiduciary duties

D&O Insurance policy covers directors & officers against:

• Breach of trust
• Breach of duty
• Managerial Errors
• Misleading Statements
• Wrongful trade practices

Note: This is just an indicative list, complete list of inclusions will be part of the policy document.

D&O Liability Insurance Policy does not cover:

• Bodily injury or property damage
• Fraudulent acts
• Illegal remuneration or personal profits
• Intentional criminal acts
• Fines and penalties

Note: This is just an indicative list, complete list of inclusions will be part of the policy document.