Directors and Officers Liability Insurance

Sidebar_image1 Sidebar_image1 Sidebar_image1
1 3 2 4 5 6
Sidebar_image1 Sidebar_image1 Sidebar_image1

Are there any real life examples where D&O has helped an organisation?

A Directors and Officers (D & O) Liability Policy covers the directors and officers of a company against any financial liability that they may suffer in case they commit any error or mistake in their jobs. The directors and officers of an organisation are accountable to the shareholders, employees and customers of the company. However, if they commit any error in discharging their duties, and consequently face a financial liability to compensate for such mistakes, a D & O policy 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 the 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.

Example 1

An employee became the President of a small private limited company after convincing the directors of the company that he was ideal for the job. 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 company had a D & O policy in place. When the stakeholders registered a case against the board of directors of the company, the policy came into effect. The policy was used to cover the defence costs as well as 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 triggered an uproar, as there was fear that these statements might harm the company’s market standing and lower 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 Policy helped the director and the company from financial liabilities. The company and its subsidiaries are protected under different D&O policies which safeguard the financial interests of the company’s directors. So, any lawsuit against the directors, and the financial implication if any, would be taken care of by the insurance cover.

Example 3

A young salesperson worked with a company for 2 years. When he was fired for non-performance, he filed a civil suit against the national sales head. The sales person 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 the insurance, the sales head could hire high quality lawyers.

A D&O Policy, therefore, finds relevance in small and large organisations, both international and domestic. It gives valuable coverage to the directors and officers of a company and also to the company as a whole. So, the policy should be in place in every organisation.

SecureNow can help you get the right policy for your coverage needs. Visit www.securenow.in or call us at 96966 83999.

Additional Read: What is covered under a directors and officers Liability Insurance Policy?