Directors and Officers Liability Insurance

In every organisation, big or small, the hierarchy of the hired workforce is liable for all the work that gets done. Hence if seen legally, all professionals need liability insurance to cover themselves against any damages caused to their consumers or target audience. For instance, those who manufacture products of some kinds buy liability insurance to stay safe in case their products end up harming the user or someone else.

Similarly, business owners purchase liability insurance that protects them against lawsuits filed by employees related to any mishap during work hours. Now think about the top level in the hierarchy of an organisation. There are directors on the board, who shoulder more significant responsibilities. Any unexpected lawsuit against them can cause severe professional and personal losses. In such cases, Directors and Officers (D&O) liability insurance become more important in order to protect such liabilities.

Let’s give you better insights about D&O liability insurance.

What is D&O Liability Insurance?

The Directors and Officers (D&O) liability insurance covers the directors and managers of an organisation against lawsuits filed due to errors made while discharging their duties for the organisation. This insurance covers the legal fees that the organisation may have to suffer as a result of the lawsuits filed against their directors and officers by various stakeholders, be it employees, competitors, regulators, and others.

While most of these insurance policies exclude fraud and criminal offences, some insurers extend these policies to cover criminal and regulatory investigations or trial defence costs as well. The policies also include cover for the liabilities of the corporation as well as the personal liabilities of its directors and officers. Common exclusions to these policies involve intentional damage and contractual commitments related to the insured individuals. 

Additional Read: How can you protect a company’s biggest asset?


Why is D&O Liability Insurance significant for Non-profit organisations?

Some of the prime reasons that make D&O liability insurance practically indispensable for the directors and officers in an organisation are as follows:

  • Investigations from regulators
  • Irregularities in the organisation’s accounts
  • Corporate governance needs
  • Legal compliances
  • Allegations from various stakeholders, which can involve sexual harassment or discrimination to name a few
  • Exposure to claims made by the shareholders

Importance of D&O Insurance for Non-Profit Organisation

It is more like a misconception to believe that only the directors and officers in for-profit organisations need Directors and Officers Liability insurance. Contrary to it, even the directors and officers in non-profit organisations have considerable exposure to personal liabilities. 

As per reports, there are around 2 million non-profit organisations in India. Most of the liabilities of directors and officers in the non-profits occur because of their lack of experience. They know less about their legal duties and responsibilities. Some directors are recruited by gauging their passion for the cause the organisation supports, not their expertise.

Even those who have some knowledge or experience prefer to follow the informal approach to deal with legal issues, thus making themselves more vulnerable. Their lack of sound knowledge and expertise about the right decision making as per their roles increases the risk of claims against their organisations.

In some cases, the compensation for just one claim can turn out to be much bigger than the cost of any insurance premiums for D&O insurance they would have paid otherwise. Hence, there are several right reasons why opting for D&O liability insurance protection is essential even for the non-profits. 

Additional Read: If you own a small or medium business, do you need to buy D&O policy?

What More Do You Need to Consider?

Indeed, the claims related to D&O policies can take different forms, depending on the level of risks an organisation faces. Many of the duties and responsibilities of the board directors place them at the risk of allegations. For non-profits, it can be about the complaints or allegations on how they work for public relations, raise funds, and many others.

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