D&O Insurance

What is Directors & Officers Insurance?

Directors and officers insurance offers coverage for unexpected liabilities arising against the managers for any decision or action taken by them as a part of their duties. Organisations usually purchase D&O insurance policies to protect their directors and officers from expensive lawsuits. 

Also, if the organisation does not have this insurance then it is highly unlikely for them to attract managerial-level talent because the risk involved is high.

If the organization cannot financially cover its employees, directors and officers then this policy steps in to save the day by paying those costs and protecting the person’s personal assets. 

However, if the company can indemnify the cost then D&O Insurance will reimburse the paid amount.

Why are Directors and Officers Insurance Required?

Here are a few reasons, why D&O Insurance is required in an organisation:

• In case of employment practice violations such as sexual harassment, discrimination allegations, regulatory investigations, accounting irregularities, and corporate governance requirement
• Any kind of exposure that might rise up during mergers and acquisitions
• Compliance with several legal statutes
• Helps with vulnerabilities to stakeholders/shareholder's claims

Features & Benefits of D&O Insurance Policy

Here are some of the features and benefits of Directors and officers insurance:

• Directors insurance provides blanket cover on an unnamed basis and coverage for all ages of directors irrespective of designation, including retired, present and future directors.
• The plan offers security in case of any alleged or actual error, omission, misstatement, breach of duty, or misleading statement.
• Generally, investors consider d&o coverage as a prerequisite for providing funds to a company.

Types of Directors & Officers Insurance

There are two primary clauses under D&O insurance with the option of selecting a third clause:

D&O Coverage

D&O liability insurance provides coverage for the following:

• Right to defend coverage is provided under the d&o policy
• Coverage for subsidiaries is provided, outside directorship, retired directors, assets, and liberty costs such as bail bond, prosecution, civil bond expenses, heirs, legal and estates representatives, Emergency expenses, Kidnap response, Defense cost, Severability and pollution-associated claims for defense expenses and shareholder claims, etc under d&o policy
• Employment practice liability cover
• Cover for negligence/ failure to monitor any claims related to professional indemnity
• Regulatory crisis response coverage is provided under the board of directors insurance
• Damage to reputation cover
• Bilateral discovery period cover
• Special excess security for non-executive directors

What does D&O Insurance Not Cover?

The D&O policy does not provide coverage for the following:

• Directors and officers insurance does not provide coverage for any kind of fraudulent activity.
• The policy does not provide coverage for any kind of intentional non-compliant activity.
• No coverage for any personal profit or illegal remuneration under directors insurance.
• A D&O policy will not provide coverage if the action has been taken before the initiation of the policy
• Any kind of property damage or bodily injury
• Fines and penalties

Who can Get Covered Under D&O Liability Insurance

Here is a list of people who can get covered under D&O insurance:

• Company Secretaries
• Legal heirs
• Directors
• Employed lawyers
• Estate representatives
• Officers
• Spouses

Who can Take Action Against Directors and Officers?

Here is a list of people who can take action against Directors and officers:

• Employees
• Competitors
• Suppliers
• Regulators
• Shareholders
• Customers
• Other stakeholders

D&O Insurance for Small & Medium Sized Companies in India

In today's fast-paced and ever-changing business landscape, managers are often required to make critical decisions on the spot. However, this fast-paced environment can make small business owners and managers vulnerable to legal action from a wide range of parties, including regulators, shareholders, customers, competitors, employees, and government bodies. 

As these legal actions can have a severe impact on the personal net worth of the owners, who are often closely tied to the financial health of the company, it's important to mitigate this risk.

Cost of D&O Insurance Policy

The price of D&O insurance can fluctuate significantly, depending on a variety of factors such as company size, industry, financial position, risk tolerance, claims history, and revenue. Typically, businesses with a longer operating history tend to pay less than younger organizations, all else being equal.

What Type of D&O Insurance Should I Purchase?

Choosing the right type of D&O insurance for your company depends on various factors such as your company's specific needs and budget. It's essential to consider a few main factors, such as whether the policy should only cover managers (Side A) or the company as a whole (Side B and Side C). 

Another key consideration is determining how much coverage is adequate for your company. Additionally, it's important to assess the most significant D&O risks that your company faces, as these may differ depending on the nature of your business.

Six Steps to Structure D and O Insurance Program

• Benefit from degressive pricing of insurance, where larger towers offer better value for premium money.
• Consider specialized protection for individuals that cannot be affected by entity coverage and still works if the entity cannot indemnify. 
• Diversify your insurance program by selecting a tower with many carriers with small limits for increased stability.
• Ensure that your insurance program is international for cohesive global coverage.
• Confirm that the primary carrier's claims department has successfully settled large claims and understands their claims protocol.
• Avoid overloading policies with too many "extras" and ensure sufficient limits are available for the main risks.

How Directors and Officers Liability Insurance Gets Triggered?

D&O insurance in real life is pretty simple. It all begins when a manager allegedly fails to perform their duty. Some of the common scenarios include reporting errors, insolvency, employment malpractice, regulation violation, etc. and as a result, several claimants end up suing the manager and that's when the D&O insurance policy gets triggered.

How to Raise a Claim under D&O Liability Insurance?

Follow the below-mentioned steps to raise a claim under directors liability insurance:

• Inform Insurer: Inform your insurer as soon as any legal complaint has been filed.
• Keep Documents Ready: When you will raise a claim the insurer will ask you to submit a set of documents along with the claim form so keep them handy.
• Fill-in Form: Ask your insurer to give you the claim form to fill up and submit as quickly as possible.
• Inspection: The insurer will send a team of inspectors to check if the reason behind raising a claim is valid and within the range of coverage provided by the insurance company or not.
• Compensation: Once the inspector gives a green signal, the insurer will provide compensation as specified in the policy.

How to Renew D&O Liability Insurance?

To renew your Directors and Officers liability insurance coverage, follow the below-mentioned steps.

• Step 1: Go to the Policybazaar Insurance Brokers Private Limited official website.
• Step 2: Fill in your policy number to get into your account
• Step 3: You can add or remove any add-on if you want as you can do it only either at the time of purchasing the policy or while renewing it
• Step 4: The premium amount of your updated insurance plan will be shown as per your addition or removal of any add-on
• Step 5: Click on the “Renew” button
• Step 6: Make the payment using your debit/credit card, UPI or net banking
• Step 7: Once the payment is done, the insurance company will send the updated insurance policy’s soft copy to the registered email. Apart from this, a hard copy of the policy is also sent to the registered home address in a few days

*To avoid the cancellation of the policy, make sure to renew your directors liability insurance on time.