Case Studies in D&O insurance
The directors and officers liability insurance, also known as D&O policy, is a liability insurance which offers coverage for the personal liability of directors and officers. This liability may arise due to wrongful acts done by them in their managerial capacity. The defence costs are covered and payable in advance under this policy before the judgement is delivered.
The Directors & Officers liability insurance policy gives protection for claims which are brought against directors, employees and officers of the company. There could be an alleged breach of duty or neglect or misstatement or error in their managerial ability. Employers, customers, regulators or even shareholders could bring up such actions.
The D&O insurance premium is computed on the basis of the size of the company, the nature of work, geographical spread and the coverage taken. The company has to pay extra premium if it requires additional cover for ransom, abduction, cover in international markets etc.
To understand the concept of the D&O liability insurance better, let’s look at few case studies.
Case Study 1
Ruby complained to Rajiv, the managing director of L.J Associates that her manager Jivesh was mentally harassing her. On hearing this, Rajiv assured Ruby that he would look into the matter. However, he got so busy with work that he forgot about Ruby’s complaint and put off any investigation. Ruby complained one more time. This time in writing. However, again Rajiv did not take any action. Ruby quit and threatened to sue L.J Associates.
The fear of a possible lawsuit compelled Rajiv to investigate the case. He found Ruby’s allegations to be true. He fired Jivesh. But, that did not close the case. Ruby filed a case against Rajiv and L.J Associates and its board of directors for allowing mental harassment in the workplace and failing to take any action. Here, Ruby alleged that she complained to Rajiv about the harassment, but still he did not pay attention, and as a result, she had to quit.
The case reached court and the decision was in favour of Ruby. The court found that Rajiv did not act timely on Ruby’s application of Ruby. Due to this negligence, she not only suffered mental trauma but also had to quit the job. The court asked Rajiv to pay hefty compensation to Ruby. Additionally, the court also asked LJ Associates to pay a fine of Rs 10 lakhs to Ruby for mismanagement.
How D&O helped
Fortunately, L.J Associates had purchased a Director & Officers Liability Insurance for all its directors. So, when the company received the notice of the legal suit, it informed its insurance company. The insurance company asked for the complete account of the incident and agreed to settle the claim. The claim fell under the purview of Directors and Officers Liability Insurance.
As the court had asked Rajiv to pay Rs 30 lakh as compensation to Ruby, the insurer paid the same amount to her on behalf of Rajiv. Along with this, the insurer also covered the legal expenses which the company had to incur while defending itself in the court. In this case, the insurance offered the coverage in the following two ways-
- The insurer paid compensation to Ruby
- The insurer covered expenses incurred by L.J Associates in defending itself in the court
Typically, the D&O insurance would not have covered the litigation costs and penalty against L.J. Associates. This is because, the policy only insures the directors and officers. However, in this case, these costs were also paid because L.J. had bought an entity EPLI extension.
Case Study 2
In 2016, a large conglomerate sacked its chairman after a fallout. However, this fall out had triggered a claim under the Directors and Officers Liability Insurance policy. The company had bought the policy in 2013.
The conglomerate had bought a D&O cover with over $20 million coverage. In addition to offering financial cover to all the directors of the company, the policy also helped in covering a series of companies.
The former chairman had made some derogatory comments about the company. He had also said that one of the group companies was taking some loss-making decisions. These comments could pose a serious threat to the brand value of the company. The company has a strong presence in the USA as well. International investors could also take some action against the company.
However, the conglomerate was confident that if a claim arose, the D&O insurance policy would cover their expenses, including compensation and legal expenses.
How can SecureNow help
Your D&O liability insurance policy should provide the needed help at the right time in a hassle-free way. For example, which extensions to take is a major decision. Thus, it is important to select the right insurer. SecureNow has expert knowledge to provide you with a detailed list of different insurance companies offering a D&O liability insurance coverage. This list can help you make the right choice. You should also ask the insurer to provide you with real-life examples of claims settled. Visit www.securenow.in or call us at 96966 83999 and share your coverage needs.