If your organisation has an assembly of directors and officers then it is necessary that you must avail a policy that covers these important people from third-party claims made on some of their decisions taken in their official capacities. These third-parties may include the vendors, customers, employees, contractors and sub-contractors.
Insurers offer the Directors’ and Officers’ Liability Policy for such purposes to all the listed and non-listed companies.
Who is included in the cover?
- A Directors’ Liability Policy or D&O policy provides protection to the present, past and future directors, officers, management committee members, member of the board of directors, supervisory board members or governor of the organisation duly appointed taking into account the laws
- It also covers any decision made by domestic partners and legal heirs of directors, officers and the managers, made in the official capacities.
- A de-facto or a Shadow Director is also included in this policy. A shadow director generally holds the maximum share in the organisation and may not be a director in actual capacity but his directions are still complied within the organisation
- Any past, present or future director who is a member of the internal audit committee of the organisation
- Any person listed as the prospective director in the prospectus of a public offering issued by any company
- Past subsidiary:
Any organisation, which is no longer a subsidiary to your company will still, be covered under the policy for acts or decisions that were done or taken by its directors or officers during the tenure of the policy or the extended discovery period.
- Past and present non-executive directors:
There are two types of directors in an organisation: executive and non-executive. While executive directors are active participants in the day-to-day activities and decision-making of the company, non-executive directors are mostly responsible for giving an unbiased viewpoint about certain decision that is to be taken.
Any past non-executive director can also be held liable for certain decision that the company must have taken on his suggestion and so, this directors liability insurance policy covers the expenses, legal or otherwise, that may arise during the third-party claims.
What is covered under D&O policy?
As mentioned in the introduction, this policy covers the costs of any administrative, civil and legal proceedings done against the company or its directors and officers due to the following:
- Breach of employment and discrimination charges:
Employees may feel discriminated due to the decision of the sudden lay-off taken by the organisational management. Your D&O liability policy will come into effect to cover the cost of lawsuits done by such employees or to settle the case outside court.
- Breach of conduct:
Alleged or actual breach of conduct, acts of harassment and sexual harassment may lead the top management and the company into deep trouble! A D&O policy will ensure saving the reputation of the company in case the whole entity is accused in such a case instead of a single person.
- Litigation due to bankruptcy:
Your company going bankrupt is not only a cause of worry for the directors, officers or the top management as it also affects the related parties like investors, vendors, creditors and others. In case of failure to repay a loan, the creditors might accuse the top directors that deals were locked even though it was known that the company could not repay it.
Such a situation might emerge immediately and in case of a bankrupt company, it will be difficult to incur even the legal fees. A D&O insurance policy helps in such cases as it will cover the legal costs of these lawsuits.
- Lawsuits by competitors:
There may be several differences between you and your competitors. The competitors might sue your organisation for misconduct and employee piracy and information. A D&O policy is a must for protecting your business in such cases.
- Special Excess cover for present Non-executive directors
Non-executive directors who are presently working with the organisation are offered an excess cover over and above the primary policy cover by some organisations.
This is significant in order to boost the morale of the non-executive directors and increase their efficiency for organisational benefit.
- Other costs:
Other costs that are covered under this policy is the investigation expenses, kidnap and response cover and crisis response cover. Discovery period for retired directors is also included in the policy.
So, you need to choose the policy that meets maximum of your organisational requirements considering the size of your business, number of top management members etc.
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