A Directors & Officers Liability Policy covers the directors and officers of a company against any financial liability. They may suffer in case they commit any error or mistake in their jobs. The d&o organization are accountable to the shareholders, employees, and customers of the company.
If they commit any error in discharging their duties, and consequently face financial liability to compensate for such mistakes. A D&O insurance cover can help in covering the costs, compensation, and other liabilities.
The D&O policy covers the legal costs incurred by the company or its directors and officers in defending themselves. It also covers any compensation payable to aggrieved party in out-of-court settlements, if the insurer approves these. Thus, the policy proves to be very helpful in the corporate sector.
Let us look at some disguised examples of real clients wherein a D&O policy actually came into use in organization.
Example 1
An employee convinced the directors of a small company that he was the most suitable and became the President. However, under the new President’s leadership, the company’s revenues dwindled.
As a result, the company’s financial position became weak. One of the small shareholders of the company then sued the board of directors. He held them responsible for the weakened financial position of the company.
The shareholder argued that the board of directors did not make a good decision in choosing the President. And their action was not in the company’s best interests. The case reached the court. The settlement reached USD 1.5 million, and the legal fees incurred totalled INR 500,000.
The organization had a D&O insurance policy in place. When the stakeholders registered a case against the board of directors of the company, the policy came into effect. The policy covered both the defense costs and the settlement paid. This way, the policy helped the company as well as the board of directors from a huge financial strain.
Example 2
In 2016, a large conglomerate sacked its chairman after a fallout. He had reportedly made damaging statements about the company’s management. He mentioned that the management was taking loss-making decisions on emotional grounds.
This statement caused concern and upset. As there was a fear that these remarks could damage the company’s reputation in the market and decrease the price of its shares.
This would have caused substantial losses to the shareholders. Thus, as expected, the shareholders brought a class-action lawsuit against the company and its directors.
At this time, the D&O Liability Policy helped the director and the company from financial liabilities. Different D&O policies protect the company and its branch, safeguarding the financial interests of the company’s directors. Therefore, the insurance cover would handle any lawsuit against the directors and the associated financial implications.
Example 3
A young salesperson worked with a company for 2 years. He filed a civil suit against the national sales head after the company fired him for non-performance.
The salesperson argued that the sales head harassed him and did not allow him to work properly. He also didn’t receive timely feedback on his performance.
The insurance covered the national sales head’s legal defence costs. Ultimately, the court dismissed the case. This happened because, with the support of insurance, the sales head could hire high-quality lawyers.
A D&O Policy, therefore, finds relevance in small and large organizations, both international and domestic. It provides important protection for the directors and officers of a company, as well as for the entire company. So, the policy should be in place in every organization.
About The Author
Rajesh
MBA Finance
With a wealth of expertise in the insurance realm, Rajesh is a distinguished writer specializing in articles focusing on directors and officers insurance for SecureNow. Boasting 9 years of experience in the industry, he profoundly understands the complexities surrounding directors and officers liability coverage. Their articles delve into the intricacies of D&O insurance, providing readers with invaluable insights into risk mitigation strategies and policy considerations. Renowned for their comprehensive knowledge and attention to detail, Rajesh is dedicated to delivering informative and engaging content that empowers individuals and businesses to navigate the complexities of insurance with confidence.
