Directors and Officers Liability Insurance

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Can directors buy D&O policy for themselves?

The role of directors

The directors of an organisation make efforts towards the growth and development of the company. They are liable to the stakeholders, business vendors, suppliers, creditors, government, and even to the business. Normally, directors and managerial officers have to take important decisions for the organisation’s benefits. These decisions impact third parties too. They have a vested interest in the growth and profitability of the business. If, however, directors commit mistakes due to errors, negligence or omission, such mistakes can impact third parties as well as the organisation.

The onus of third parties’ financial loss rests with the directors or officers. A third party can hold directors personally liable for financial loss. The personal estate of the directors might come under strain due to such responsibility. This is where a director’s and officer’s liability insurance policy comes to the rescue of directors.

What directors and officers insurance covers

Director’s and officer’s (D&O) liability insurance policy covers the personal liability of directors as well as the organisation’s financial loss. Though the director’s insurance policy protects the financial liabilities of the directors, they cannot buy it directly. The organisation needs to invest in the D&O policy on behalf of its directors. Let’s understand why.

Many third party lawsuits name the company and also the directors in it. This is because the directors represent the organisation, which is a separate legal entity. When third parties file a loss claim, they do not file it against the directors. They file it against the organisation which then indemnifies its directors for the financial losses. So, if any settlement is payable to third parties, the organisation pays the settlement. And, even if the organisation files for bankruptcy or becomes insolvent, the D&O liability insurance policy indemnifies the directors for the settlement payable to third parties. Since, the directors are the face of the organisation the company needs to invest in D&O policy to protect its directors from financial liabilities.

Additional Read: Can board of directors be held personally liable for claims?

There are, usually, multiple directors in an organisation. Often, multiple directors are named in a liability claim. Buying independent policies for each director is not feasible. It becomes a problem during claim to find the liability of each director. A director’s insurance policy covers all the directors under a single plan. The policy collectively protects all directors against liabilities. Whichever director is named in the lawsuit is covered by the D&O liability insurance policy.

Can directors buy D&O policy for themselves?

Directors themselves do not buy a D&O policy. The organisation buys it on behalf of its directors and covers all the important directors and officers.

If your organisation is looking for a suitable director’s insurance policy, visit SecureNow or call us at 96966 83999 and find the best plans that suit you.

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