A directors’ and officers’ (D&O) liability insurance policy covers an organization’s directors and officers. But would a D&O Liability insurance cover staff who are hired on a contractual basis?
Who is a contractual employee?
A contractual employee is one who works for the employer under a contract. The employer hires such an employee for a particular job and offers them a specific payment. This is how contractual staff differ from permanent employees. A company might also hire directors and officers on such a contract basis.
Contractual staff cover in D&O liability insurance
Fortunately, a D&O liability policy can cover not just a company’s directors and officers but also those of subsidiary companies as well as non-executive or independent directors engaged on a contractual basis.
Case study: Cover for employment practice claims
YR International, an information technology company, operated in Daman. It had 30 employees, three permanent directors, and a consulting director.
Since the company’s profit had been declining for two quarters, its directors decided to employ cost-cutting measures. One such measure involved reducing the number of employees. The company terminated seven employees. One woman who lost her job filed a claim against the consulting director, a contractual employee, on the grounds of unfair dismissal and alleging gender discrimination.
The company immediately contacted its insurance providers. YR International had purchased a D&O liability insurance policy. This covered the directors and officers of the firm against the losses mentioned. This cover extended to contractual staff as well. Therefore, the policy-protected the consulting director against the claim and related losses.
Case study: Cover for alleged wrong business decisions
A property management company appointed Sumit as a consulting director. He was a contractual employee and had signed a detailed agreement specifying his employment terms.
Initially, the company did well and generated a considerable return on investments. However, some years later, business started declining. Despite several measures, the company’s profits continued to decline. Finally, the directors chose a drastic measure, selling the company to a prospective buyer.
Then, a minority shareholder of the property management company brought legal action against Sumit. The shareholder’s claim was that Sumit had failed to obtain a fair value for the sale of the company. The legal action demanded a payment to cover the shortfall.
Sumit’s company had secured all its directors and officers with a D&O liability insurance policy. The policy also provided protection for contractual staff like Sumit. Thus, Sumit was able to secure himself since the insurers successfully settled the claim against him.