Why should a start-up consider Directors and Officers(D&O) Insurance?
Start-ups grow so rapidly that it’s often difficult for them to correct course if they commit any mistakes. Additionally, at their incubation and early start stage, start-ups usually ignore Directors and Officers Liability Insurance. This ignorance results from the misconception that only big organisations require this policy. However, start-ups can also face fines due to instances of non-compliance, breach of duty etc.
A D&O policy definitely helps in improving the chances of survival and success of any start-up. Generally, there is often a lack of trust when it comes to making an investment in start-ups. In such cases, a Directors and Officers Liability (D&O) Insurance can help. Many a times, the investors before funding a company place a condition that the company has this insurance policy. So, it is crucial to buy this policy as this is a core consideration for investors providing funds to start-ups. It helps you in getting capital from them. Moreover, this policy helps in the recruitment of best talent for top-level management as it safeguards the personal assets of officers and directors.
Benefits of D&O policy for start-ups
Spending money on litigation can create financial crises. Usually, start-ups do not have deep enough pockets to manage these well. However, they can avoid such failures if due diligence is carried out at the incubation stage itself. It is advisable to consider a directors and officers liability policy at this stage only. The policy helps in safeguarding your business from day one. This motivates investors and the best people of the industry to be a part of your start-up. This helps in creating a strong foundation for the start-up.
Directors and officers make better decisions when they have a sense of security. A D&O policy can give them assurance that they do not have to face personal lawsuits. Start-ups are highly risky. So, it is critical to manage an insurance portfolio. This will decrease the magnitude of risk and safeguard your management. If employees, shareholders or competitors file a lawsuit against the directors and officers, alleging deceptive advertisements, breach of fiduciary duty etc. a D&O policy would protect.
Public, private, start-ups and non-profit companies face directors and officers litigation risks. Thus, start-ups should invest in this policy early in order to get proper coverage right from their inception. This policy can help you to handle incorrect business decisions affecting your business reputation and inviting litigation costs. So, it is crucial to buy a D&O Liability Policy.
Case Studies on Directors and Officers Liability Insurance
AB Services is a fast growing start-up providing app development services. However, during the pandemic, the company hit a rough patch and did not pay some vendors. These vendors then filed a case on the board members claiming that they had not provided proper oversight. Fortunately, AB Services had a D&O insurance. This insurance paid the directors the costs of defending themselves against the allegations.
BZ Tech Ltd. is a new technology start-up. The start-up has not invested in a Directors and Officers Liability insurance. However, soon after inception, select employees sued the founders for stealing their intellectual property. As per the employment contracts the case went into arbitration that was settled in favour of the employees. The founders were asked to pay Rs 1 Crore to the former employees. The founders did not have this money and consequently the case went to the courts who then attached the founders’ personal properties.
If the company had invested in a D&O policy in advance, the insurance company would have protected the personal assets of Directors and Officers. The policy would have provided the much-needed financial stability to the founders.
The policy would have indemnified Directors and Officers of the company for the legal costs, damages and expenses incurred, arising from claims brought against them personally, for acts in their executive capacity.
Role of SecureNow
SecureNow can help you get the best D&O policy. This insurance has to be placed carefully because there are many extensions and caveats and small oversights can be costly when claims come up. So, visit www.securenow.in or call us at 96966 83999. Share your coverage needs and get the best advice from us.