Exclusions are part and parcel of every insurance policy and it is quintessential to understand and update yourself on various ‘ins and outs” of insurance policy. Directors and officers liability insurance covers personal actions against Directors/Officers of the company for wrongful acts whilst performing their duties as administrators of the company. Availing this policy does not provide a green signal for negligence or bad behaviour as it comes with various exclusions such as:
1. Dishonesty: Directors allowing amendments in financial figures in order to crack a deal.
2. Misuse of company’s fund: Illegal remunerations or misrepresentation of company’s fund performed within the scope of managerial duties would not be covered.
3. Personal Profit: Businesses would not be so competitive if the supreme motive of economic gain is ignored. All deliberate dishonest fraudulent acts performed out of personal motives will not be covered under this policy.
4. Prior or pending ligation or notice: All the known circumstances, liabilities prior to policy inception are excluded in this policy. The policy will start covering claim cases from the inception date only.
5. Claims covered by other insurance: A company has a broad insurance portfolio so it is crucial to check whether the case is not falling within the domain of any other insurance policy such as bodily injury or property damage claims.
6. Standard Exclusions: It comprises of pollution claims, war and radioactivity claims, workmen compensation, criminal activity, bankruptcy, theft of intellectual property and any violation of the statute, rule of law.
The directors liability insurance policy will cover necessary defence costs arising out of wrongful acts such as error, misleading statements, acts or omission or neglect or breach of duty, up to the specified sum insured. As a Director or Officer, you are personally liable for your actions so any kind of error or wrongful act except the list of exclusion are covered under this policy. It will cover the individual for personal loss when the company cannot or when the corporation law makes you personally liable for your actions as a Director or Officer.
BCD Limited has availed Directors & Officer Liability Insurance. They have made a contract with one of their clients and in the formal documentation, it is specifically mentioned that occurrence of the breach of contract will make the company liable to pay the compensation of Rs. 50 lacs. Under such scenario insurance company is not liable to pay the compensation amount if the breach of contract occurs. Since this liability is a known liability promised by the company to its client so it will not be covered under this policy.
In order to deal with the reputational crisis and financial losses, it is pivotal to avail Directors and Officers Liability insurance as it provides a strong support for corporate governance. This policy covers all the defence fees arising out of litigation so it acts a risk bearer for contingencies. It is an important requisite as investors usually place the condition of having D&O liability insurance policy for funding your company. Policy offers dual benefit of protecting directors from serious exposures of wrongful acts and attracting investors for funding. It is always advisable to buy D&O insurance policy and add value to your corporate risk management and avail a shield of financial protection against lawsuits.