Directors and Officers Liability Insurance

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Yes, Directors and Officers Liability Insurance is a claims-made policy. This policy is a pillar of strength through the dark phase for many a company, since it safeguards the directors, officers and management against financial crises arising due to alleged or actual wrongful acts. It is an inevitable part of a risk management portfolio and a supportive presence at the time of contingencies.

A claims-made policy covers only potential claims which have occurred and are reported during the period of insurance. The policy has to be active when the alleged incident happened and when the claim is reported so these dates are the key considerations in a claim-based policy. A Directors and officers liability policy provides coverage of incidents from its inception date provided that the policy is continuously renewed every year. There are unique benefits offered by a claim-made policy such as:

– Low-cost premium for the first few years because the period of exposure is short.

– Covers past, present and future directors.

– Covers prior acts with retroactive settlement.

Generally, the retroactive date is the inception date but there is more in the retroactive date. One can extend coverage back to a specific date from which all losses and contingencies would be covered. The insured can negotiate on the policy term period and avail coverage for prior acts.

Example: The insurance inception date is 1 January 2020 but the insured negotiated with the insurer and using the retroactive date option extended back his D&O policy coverage from 1 January 2018. In this case, all the loss incidents will be covered from 1 January 2018. This facility is not provided by all insurers, however. Some insurers may offer you this coverage, provided your D&O policy does not have any break.

The focus is always on the date of notification of claim and the alleged incident date. In order to settle your claim without hassles, inform the insurer about the potential claim as soon as you become aware of it.

Directors and Officers liability insurance is a claims-made insurance. An objective of the insurer and insured is to ascertain the specific retroactive date from which the coverage would be implemented. The policy term period has to be determined using expertise of loss occurrence forecast or risk factors. While opting for Directors and Officers Liability Insurance, it is crucial to study the impact of claim-made policy as initially the premium would be low but later on with the larger span of time, the exposures will increase which ultimately result in a high premium cost. This insurance provides coverage against error, negligence, misleading statements, acts or omission or breach of duty and ensures reputational and financial stability

Case Study:

A company has Directors and Officers liability insurance with a term period of 2018-2019. A client, alleging the director manipulated a certain contract’s details, filed a case against him in November 2018 but the company did not inform the insurer about the claim. The insurance company came to know about the claim after the policy term period was over. In this case, the claim is not payable because it was not reported during the policy term period. Although the incident occurred during the policy’s term period, the notification was done after the policy was exhausted, so the claim is not considered a valid D&O claim, as it is a claims-made policy.

Informing the insurer about the claim during the policy term period is crucial in D&O liability policy. Hence it is recommended to buy director and officers liability policy to protect your professional services from all the probable risk exposures from day one and also ensure continuous renewal of the policy without a break. Stick with the policy for the long haul and stay safe and at peace by mitigating your risks efficiently.