Directors and Officers Liability Insurance

Directors & Officers Liability Insurance (D&O Liability Insurance)

What is Directors and Officers Liability Insurance?

Directors and officers liability insurance is a type of liability insurance catering to directors and officers of an organization, or to the organization(s) itself. It offers a reimbursement in case there are any losses or advancement of defense costs, if the insured faces any loss due to any legal action against alleged unethical or wrongful acts. The coverage includes defense costs resulting from any criminal and regulatory investigations as well as trials. Most of the criminal and civil actions are taken simultaneously against directors and officers. Although, intentional illegal activities, are not generally covered under directors & officers liability plans

It is associated with wider management liability insurance, as it provides coverage for the liabilities of the company or the personal liabilities of the directors and officers of the company.

D&O Liability Insurance Importance

Importance of Directors and Officers Liability Insurance

Directors and officers’ liability insurance safeguards past, present and future directors and officers of profit or non-profit organizations from any damage(s) arising from alleged/actual wrongful activities they may have been involved in. The plan offers security in case of any alleged or actual error, omission, misstatement, breach of duty, or misleading statement. There are some plans which extend the cover to employees as well.

When a Board of Directors is established, directors and officers liability insurance is useful. Generally, investors consider directors and officers liability insurance as a pre-requisite for providing funds to a company.

Scope of D&O Liability Insurance

The scope of D&O liability insurance is mentioned below.

  • In case an organization incurs any losses due to erroneous actions or decisions taken by the directors and officers in fulfilling their duties according to the memorandum and articles of association.
  • In case of losses resulting from claims filed against them by any wrongful act in their capacity.
  • With the written consent of the insurance provider, any legal expenses resulting from the prosecution of any director or officer for any examination, inquiry, investigation, or proceedings by the concerned authority.
  • Any expenses incurred by the shareholder of a corporation for pursuing a claim accusing any director or officer, and organization is lawfully obliged to pay as per the ruling of a court.
  • It provides indemnity to the legal heirs/legal representatives of the director or officer in case the director or officer becomes insolvent.

Features of D&O Liability Insurance

The Features of Directors and Officers Liability Insurance

Directors and officers of corporations are answerable to their shareholders, employees and the general public of the organization. Any wrong decision can lead to a legal hassle. The consequences followed by such allegations can trigger a civil or criminal action against directors and officers. The directors and officers’ liability insurance plans offer cover against a wide array of civil and criminal actions that can be taken against directors and officers.

Covers

Right to defend coverage

Coverage for subsidiaries

Coverage for outside directorship

Coverage for retired directors

Employment practice liability cover

Cover for negligence/ failure to monitor any claims related to professional indemnity

Regulatory crisis response coverage

Coverage for assets and liberty costs such as bail bond, prosecution, civil bond expenses etc.

Damage to reputation cover

Coverage for heirs, legal and estates representatives

Bilateral discovery period cover

Emergency expenses coverage

Kidnap response coverage

Defense cost coverage

Advancement of defense expenses

Severability coverage

Special excess security for non-executive directors

Coverage for pollution associated claims for defense expenses and shareholder claims

 

Why D&O Liability Insurance

Why is a Directors and Officers liability insurance plan required?

Here are a few reasons that make directors and officers insurance a necessity.

  • Vulnerability of stakeholder/ shareholder claims.
  • Discrimination, sexual harassment, allegations.
  • Accounting irregularities.
  • Regulatory investigations.
  • Mergers and acquisitions related exposures.
  • Requirements of corporate governance.
  • Compliance with several legal statutes.

The plan is formulated, especially, to safeguard the legal claims for wrongful acts such as errors, omissions, misstatements, breach of duty, negligence etc. of directors/officers while on duty. The plan caters to the directors, officers and the organization itself.

Benefits of D&O Liability Insurance

Key Benefits of Directors and Officers Liability Insurance Plan

Furthermore, the key benefits of directors and officers insurance plan will help you to understand its necessity.

  • Indian corporations must purchase D&O insurance plan in order to safeguard their directors and officers from various exposures resulting from the compliance with several statutes. Directors are more likely to uphold demanding legal obligations.
  • Independent as well as nominee directors are accountable to stakeholders.
  • When Indian companies foray into the international market in order to sell out their products or services, they need to buy Directors and officers insurance to safeguard their overseas exposures.

D&O Insurance

Directors and Officers Insurance for Small and Medium-Sized Corporations

Today, businesses have to survive in a dynamic and fast-paced environment. The management takes care of the day-to-day operations and it needs to take important business decisions in high-pressure situations. Such decisions can have unpredictable consequences.

This makes owners as well as managers of small companies vulnerable to lawsuits from customers, regulators, competitors, shareholders, government bodies, employees etc.

An expensive lawsuit can pose a severe threat to individuals’ financial health as the owner’s net worth is linked with the finances of the organization. That’s why directors and officers liability insurance policy is loaded with the benefits to safeguard the financial wealth of unlisted small as well as medium-sized companies.

It offers coverage for their officers and directors from such claims and lawsuits.

The D&O Liability insurance specialists can help analyze the sum assured for the safety your company. The insurance covers are assessed on the basis of your risk exposure so that a comprehensive protection can be offered at an affordable premium.

Why PolicyBazaar

Why PolicyBazaar?

There are several D&O insurers to choose from and picking the right insurance plan can be a daunting task. At PolicyBazaar, you can compare the plans from top insurance companies in India and buy the one that best suits your business requirements. In these increasingly litigious times, your company's officers and board of directors are potential targets of financially crippling lawsuits.

Be prepared for it and buy the right plan from PolicyBazaar!

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