Directors and Officers Liability Insurance

An experienced sailor often has to steer a ship through deep waters, dealing with stormy weather, rough tides and other perils.  Similar to this is the role played by the directors and officers in a company. In a dynamic business environment, these executive leaders of the company enable the business to stay robust and relevant by pushing ahead despite various obstacles and risks encountered.

However, in doing so, directors and officers face many kinds of environmental, economic, technological, and institutional challenges that pose different levels of risk for both the company and their own selves. 

The directors and officers, by virtue of their roles, are exposed to challenges from shareholders, regulators, competitors, complex capital markets, and even cybercriminals. In addition, they also have to deal with challenges related to managing talent, competition, costs, revenue growth, and innovation, all of which keeps them constantly on their toes.

Some of the risks commonly faced by decision-makers of the company are as follows:

  1. Event-driven  outcomes

The D&Os have to continually be on the forefront, to capitalize on opportunities, mitigate impending risks, and take corrective action when the need arises. The landscape in which they exercise their decision-making powers is often volatile, and this exposes them to the risk of their actions backfiring or falling flat. 

Navigating through political change, stock market highs and lows and several other situations means they can face backlashes as well as severe penalties and charges for not acting appropriately.

  1. Litigations post M&A

Mergers and acquisitions are significant events for a company. The D&Os have a major role in evaluating all essential aspects related to these and also in voting for any such activity or change. However, these leaders are exposed to the risk of litigation once such a decision is taken. In case of any post-M&A litigation, any lawsuits faced can be damaging both to the company and to the D&O’s own standing and financial value in the market.   

  1. Derivative lawsuits alleging breach of fiduciary duty

A constant risk looming large for the D&Os is that of facing a derivative lawsuit claim. Such kinds of claims are usually based on issues like breach of fiduciary duty. While some lawsuits of this kind are trivial and thus not very harmful for the individual, others can leave the individual in dire straits legally and financially.

  1. Cryptocurrency issues

Cryptocurrency has become an innovation for executing financial transactions and creating wealth. The technology itself is seen as remarkable, but unfortunately, it attracts serious regulations because of the high risk involved. It also exposes officers to the risk of severe claims if there are frauds or any defaults. 

  1. Data-Driven breaches

Since directors and officers have access to sensitive information and data, any default or discrepancy that is claimed as a case of data breach or fraud can bring huge penalties their way. This is a common risk that most Directors and officers of large companies face. Not only does such a case affect the concerned person’s reputation but it can also cause substantial financial losses, leaving them in an emotional as well as financial crisis. 

  1. Workplace harassment

After the #MeToo movement, many top-level leaders and directors feel there’s a high risk to their reputation from such cases. One case of alleged work-place harassment or wrongful employment practice can bring massive criticism and negativity from all sides, tarnishing the professional identity and status of the individual built over many years. Even if the individual in question is found to be innocent it can have a significant impact on their professional life.   

Stay secure against all risks

Given the high risk faced by D&Os, employers and companies are now striving to make changes and progress concerning the understanding and analysis of risks and also for developing adequate risk management systems. They are today making increased use of IT security measures, breach response measures, and other steps to keep any exposed risk in check. They do so not only for their company but also for its leaders.  

With regards to the above risks and situations, a D&O Liability insurance is a must-have policy that all companies should buy for their most precious resources. D&O liability insurance covers a wide range of lawsuits that might arise from employees, customers, vendors, shareholders, and even the general public. Moreover, D&O liability insurance also covers litigation that may arise due to another company’s wrongful acts, where the insured individual is serving as a nominee director. The policy also has a Side A cover, that promises to indemnify the person in case the company is not permitted to do so. Hence it is very important to keep the most critical assets of your company secured with D&O liability insurance.

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