Directors and Officers liability insurance policies cover the financial liabilities that directors face if they commit mistakes in discharging their duties. Due to their mistakes, they might be held responsible by third parties who suffer the financial consequences of such mistakes. As such, third parties might file a lawsuit against the directors and officers of an organisation. A D & O policy covers such lawsuits.
Directors and officers claims arise in any of the following instances –
- If the company files for insolvency or bankruptcy and the directors pay the settlements to third parties or incur litigation costs.
- If the company pays the settlement and litigation costs on behalf of its directors and officers
- If the company suffers claims against the securities issued by it
Additional Read: Why you need a D & O policy?
Thus, a D & O liability insurance policy covers the defence costs incurred in a lawsuit as well as the settlement payable to third parties. However, when it comes to the amount of claim, there are some factors that should be considered. These factors are as follows –
1. The sum insured that you choose
The sum insured is the maximum liability that the insurance company covers. Based on the sum insured the premium amount is determined. You have the choice of the sum insured which is, then, underwritten by the insurance company and allowed to you based on your risk level. If the sum insured is high, the coverage for defence costs and legal settlements would be high and vice-versa. So, how much defence costs would be covered by your D & O policy would depend directly on your sum insured.
2. The limit of indemnity
There is a limit of indemnity under each coverage section of the D & O liability insurance policy. This limit is set against the sum insured that you choose as well as the type of business that you have and the level of risk faced by the directors. This limit of indemnity would define the defence costs that would be covered by the D & O policy because the coverage would not exceed the limit of indemnity under any case.
3. Applicable sub-limits
Under the different coverage benefits, including coverage for defence costs, there might be sub-limits imposed by the insurance company. If there are sub-limits, the coverage would be restricted to such limits. Even if the limit of indemnity is higher, defence costs more than the sub-limit would not be covered.
There are deductibles applicable in directors and officers claims. Deductibles represent the portion of the claim which is paid by the policyholder. Thus, in case of directors and officers claims for defence costs, the claim would be reduced by the deductible applicable under the policy.
These factors would determine how much defence costs would be covered by D & O liability insurance. However, you can customize the sum insured and the limit of indemnity. Moreover, by comparing different D & O plans available in the market, you can choose a policy where sub-limits and deductibles are negligible and enjoy higher coverage for defence costs.
Additional Read: How you can raise claims under a D & O plan?
How SecureNow can help?
SecureNow can help you pick the right sum insured and the limit of indemnity for your organisation so that you get maximum coverage for defence costs. You can also compare various D & O liability insurance plans on SecureNow’s platform and choose a policy which provides the most comprehensive coverage.