Directors and Officers Liability Insurance

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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.

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

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.

Additional Read: Who are covered under Directors & Officers (D&O) Liability Insurance Policy?

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