Directors and Officers Liability Insurance

Can directors buy D&O policy for themselves?

The directors of an organisation channel their 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 as a whole. In the normal course of their job, directors and managerial officers of the organisation are tasked with making important decisions for the organisation’s benefits. These decisions impact third parties too who 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 have far-reaching impacts on third parties as well as on the organisation as a whole.

If third parties suffer any financial loss and such loss can be attributed to the directors or officers of the organisation, the directors might be held personally responsible for the loss. The personal estate of the directors might come under strain due to such responsibility. This is where a directors & officers liability insurance policy comes to the rescue of directors.

A directors & officer’s liability insurance policy offers coverage to the personal liability of directors as well as the financial loss suffered by the organisation itself. Though the director’s insurance policy is meant to protect the financial liabilities of the directors, it cannot be purchased directly by them. The organisation needs to invest in the D & O policy on behalf of its directors. Let’s understand why.

In case of any lawsuit for third party losses, the lawsuit is filed against the organisation, though the directors might be named therein. It is because the directors represent the organisation, which is a separate legal entity. Thus, when third parties file a loss claim, they do not file it against the directors they file it against the organisation itself. The organisation then indemnifies its directors for the financial losses suffered. If any settlement is payable to third parties for the loss suffered, the organisation pays the settlement. Even if the organisation files for bankruptcy or becomes insolvent, Side A Cover of the directors & officers liability insurance policy indemnifies the directors for the settlement payable to third parties. Thus, in essence, the directors are the face of the organisation and the organisation 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

Secondly, there are, usually, multiple directors in an organisation. In case of a lawsuit too, there might be multiple directors named in the claim. Buying independent policies for each director is not feasible as it becomes a problem at the time of claim to find the liability of each director. A director’s insurance policy covers all the directors under a single plan. The policy, therefore, collectively protects all directors of the company against liabilities. Whichever director is named in the lawsuit is covered by the directors & officers liability insurance policy.

Can directors buy D&O policy for themselves?

As such, directors themselves do not buy a D & O policy. The policy is bought by the organisation on behalf of its directors and covers all the important directors and officers. 

If your organisation is also looking for a suitable director’s insurance policy for its directors, you can visit www.securenow.in or call us at 96966 83999 and find the best plans for your organisation. 


Related Posts