D&O Insurance

D&O Insurance also known as directors and officers liability insurance protects designated employees like managers, directors, officers, etc. from legal liabilities arising from actions they take in their roles. This coverage applies to situations where these employees may cause harm to clients, violate employment practices, etc. leading to potential legal consequences.

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What is Directors & Officers Liability Insurance?

In today's complex legal landscape, businesses face an increased risk of liabilities and lawsuits, often triggered by negative events such as financial damage. To mitigate these challenges, companies invest in Directors and Officers (D&O) insurance.

Lawsuits are costly and their expenses are on the rise, making D&O insurance a crucial safeguard. Additionally, a strong D&O insurance program is vital for attracting top managerial talent, as it demonstrates a commitment to managing risks.

Directors & Officers insurance covers the legal defense expenses incurred by board members, managers and employees when defending against claims made by shareholders or third parties for alleged wrongdoing. It also protects financial damages, settlements and judgments arising from such claims. 

If the company cannot provide indemnification for these costs, D&O Insurance steps in to protect the personal assets of the individuals involved. If the company does provide indemnification, the D&O policy reimburses the company for these expenses. Furthermore, D&O insurance offers some coverage for the company itself in case it faces legal action.

*Personal asset coverage occurs when a company cannot indemnify a director or officer, and in the absence of D&O insurance, the individual must personally cover legal liabilities, settlements, etc.

Reasons Why Companies should Purchase Directors and Officers Liability Insurance

Here are a few salient features of directors and officers liability insurance policy that make it a must-buy:

  • Boardroom/Management Liability Policy: Blanket Cover on an Unnamed Basis

In D&O policy, there's a blanket cover that extends protection to individuals in your organization, specifically those who serve on the board or are part of the management team. What's unique about this coverage is that it doesn't require naming each individual separately. 

Instead, it provides a collective shield for all those who qualify under the policy. This approach simplifies the administrative burden of constantly updating the policy as individuals change roles or new members join the board or management.

  • Cover All Ages of Directors: Irrespective of Designation, Includes Retired, Present and Future Directors

This feature in D&O policy ensures that directors of all ages, regardless of their titles or roles, are eligible for coverage. Whether they are currently serving, have retired, or are potential future directors, this policy includes them. 

It's a comprehensive approach that doesn't discriminate based on age or position. This ensures that all individuals involved in decision-making and governance within the organization are protected.

  • “Officer” Not Defined in Policy Wording: Covers a Person in Managerial or Supervisory Position or a Person on Whose Recommendation the Board Acts

In D&O policy, the term "Officer" isn't strictly defined by the policy language. Instead, it encompasses a broad spectrum of roles, specifically individuals in managerial or supervisory positions. Additionally, it extends coverage to those whose recommendations influence the board's decisions. 

This inclusive definition ensures that individuals with significant responsibilities and decision-making influence are covered, even if their specific titles don't match traditional officer roles. It's a flexible and adaptive approach to provide comprehensive protection for key individuals within the organization.

Clauses under Director & Officers Liability Insurance

There are two primary clauses under the D&O Insurance policy with the option of selecting a third clause following which the insured gets coverage:

Side A: Protection for Directors and Officers

  • This insurance protects individual directors and officers if they're personally sued.
  • It applies when the company can't provide legal protection or if it's not allowed to.
  • There's no cost-sharing, and it covers their assets.

Example: Imagine Shweta, the CEO of a tech company, is accused of making improper financial decisions that harm the company's stakeholders. Shweta is personally sued for her actions. However, the company's financial situation is shaky and it can't afford to cover Shweta’s legal expenses. In this situation, Side A insurance steps in to protect Shweta. It covers her legal costs entirely, ensuring her personal assets are safe.

Side B: Company Reimbursement

  • If the company pays legal expenses for its directors and officers who are personally sued, this insurance reimburses those costs.
  • It also reimburses if the company pays on behalf of an officer or director to a third party.

Example: Consider a scenario where a Chief Financial Officer (CFO), Rohan, faces a lawsuit against him upon the allegation of financial misconduct. To protect Rohan’s reputation and interests, the company pays his substantial legal fees during the lawsuit. 

Fortunately, the company opted for the Side B clause while purchasing Directors and officers insurance. This insurance policy reimburses the company for the legal expenses it incurred while defending Rohan. It helps the company recover the costs it paid on Rohan’s behalf, reducing the financial burden on the organization.

Directors and Officers Liability Insurance Coverages

Here are a few common coverages provided under directors and officers insurance policy:

  • Emergency Costs: D&O insurance covers the immediate expenses incurred during unexpected crises, such as legal fees and crisis management costs.
  • Crisis Response: It includes support for managing and responding to crises effectively, safeguarding the organization's reputation.
  • Mitigation and Avoidance Services: D&O Insurance offers services to help prevent issues and mitigate potential risks.
  • Assets and Liberty Costs: Directors and officers insurance covers expenses related to protecting personal assets and liberty when directors or officers are personally sued.
  • Kidnap Response: D&O Insurance assists in responding to kidnapping incidents involving directors or officers.
  • New Subsidiaries: When the company establishes new subsidiaries, D&O insurance extends coverage to these entities.

Here are a few specific potential exposures that make a directors & officers insurance policy a necessity for the directors and officers. 

  • Vulnerability to Shareholder/Stakeholder Claims
  • Sexual Harassment, Discrimination Allegations and Other Employment Practice Violations
  • Exposures Relating to Mergers and Acquisitions
  • Compliance with Various Legal Statutes
  • Mismanagement of the Corporation
  • Imprudent Investment Choices
  • Improper Payment of Dividends in Case of Listed Companies

*Disclaimer: For the above-mentioned exposures, the insurance companies provide coverage for the legal defence cost subject to the terms and conditions of the directors and officers liability policy. However, when the insured director, officer, manager, etc. loses the case in a court of law then the penalty imposed on them will not be covered by the insurance company.

Directors & Officers Liability Insurance Policy: Exclusions

Here are a few common exclusions under Directors and Officers Liability Insurance (D&O policy): 

  • Dishonest Acts: D&O insurance typically does not cover intentional dishonest or fraudulent actions by directors or officers.
  • Fines and Penalties: Coverage generally excludes fines and penalties imposed by regulatory bodies or authorities.
  • Insured v Insured: D&O insurance often excludes claims brought by one insured party against another within the same organization.
  • Bodily Injury/Property Damage: D&O insurance usually excludes bodily injury, property damage, and pollution-related claims.
  • Prior and Pending Litigations: Director and officers liability insurance does not cover claims and lawsuits filed before the policy's Retroactive date.
  • Proprietary Information, Trade Secrets, and Intellectual Property: Directors and officers insurance often excludes claims related to the misuse or theft of proprietary information, trade secrets, or intellectual property.

*Disclaimer: Exclusions under the D and O insurance vary from insurer to insurer. To learn about them in detail refer to the policy wording provided by the insurance company.

*Exclusions under the D&O policy are subject to the terms and conditions mentioned in the policy wording/policy copy.

Who can Get Covered under D&O Liability Insurance?

Here is a list of people who can get covered under Director and officers liability insurance:

  • Company Secretaries: Directors and officers insurance includes professionals responsible for handling a company's legal and administrative matters, such as compliance with regulations and record-keeping.
  • Legal Heirs: D&O insurance can extend coverage to the legal heirs of directors and officers, protecting them in case of legal claims or disputes.
  • Directors: Directors who serve on a company's board are a key focus of D&O insurance, as they often face personal liability for their decisions and actions.
  • Employed Lawyers: Directors and officers insurance includes lawyers employed by the company can be covered, ensuring they have insurance protection while providing legal counsel to the organization.
  • Estate Representatives: Representatives handling the affairs of deceased directors or officers can benefit from D&O insurance coverage in managing any legal issues.
  • Officers: Officers in managerial or supervisory positions within the company can be protected by D&O insurance, safeguarding their assets.
  • Spouses: In some cases, the spouses of directors and officers may also receive coverage, especially when they are involved in the company's affairs or hold positions.

*Disclaimer: People eligible to get covered under the D&O insurance policy vary from insurer to insurer. Make sure to talk to your insurance provider to learn about the people covered in detail.

Who can Take Action against Directors and Officers?

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

  • Employees: Employees may file claims if they believe that directors or officers have engaged in actions that harm their rights, such as workplace discrimination or labor law violations.
  • Competitors: Competitors may bring claims against directors and officers for alleged unfair business practices, antitrust violations, or actions that harm their market position.
  • Suppliers: Suppliers can file claims if directors or officers' decisions negatively impact contracts, agreements, or business relationships with them.
  • Shareholders: Shareholders may take legal action against directors and officers if they believe that their decisions or actions have harmed the company's financial well-being or stock value.
  • Customers: Customers can file claims when they believe that directors or officers are responsible for issues such as product defects, false advertising, or unfair business practices.
  • Other Stakeholders: Other stakeholders, including community members, creditors, or business partners, may bring claims if they are adversely affected by the actions or decisions of directors and officers.

Directors & Officers Liability Insurance: Claiming Process

Here are the steps that you will have to follow to raise a claim under d and o Insurance policy:

  1. Report the Incident: Contact the Policybazaar and inform them about the incident.
  2. Claim Form Submission: The customer executive who will handle your claim process will provide you with a claim intimation form, which you need to fill out and return to them.

    The form will require the following details:

    • Policy Number
    • Insurance Company Name
    • Policyholder's Name
    • Policyholder's Address
    • Date of Incident
    • Brief Description of the Incident
    • Estimated Loss Amount
    • Incident Location Address
    • Name and Contact Details of the Person Present at the Incident Site.
  3. Provide Information: Complete the form and submit it along with any available claim-related information, such as notice sent by the court and supporting documents.
  4. Claim Registration: Policybazaar forwards the submitted details to the insurance company to initiate the claim registration process.
  5. Claim Progress: After registration, the insurance company will send a List of Requirements (LOR/Required Documents), assign a Surveyor/Investigator if needed, and provide their contact information.
  6. Communication and Updates: Policybazaar keeps you informed by relaying all updates from the insurance company, including the claim registration number.
  7. Information Exchange: Policybazaar shares relevant information and documents with the insurance company for processing and keeps you updated on progress.
  8. Expert Involvement: If you choose to involve a legal representative, you need to seek approval from the insurance company. If you don't have one yet, you must obtain approval before proceeding.
  9. Claim Processing: The insurance company reviews the claim, assesses the information and documents, and makes a final decision based on policy terms and conditions.
  10. Compensation: If your claim is approved, the insurance company processes eligible expenses or compensation as per the policy terms. Keep in mind that there may be deductions like compulsory excess (Deductible).

*Disclaimer: Kindly be aware that any involvement with a lawyer or legal documents in connection with your claim necessitates prior approval from the insurance company. Deductions and processing will be conducted in accordance with the stipulations outlined in the policy terms and conditions.

D&O Insurance: FAQs

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Policybazaar for Business - Director Officers Liability Insurance - Customer Reviews
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4.5/5
Based on 24 reviews
4.5
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Based on 24 reviews
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17 users
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4.3 October 30, 2022
Aman Gupta
Assess The Risk And More Secured
I purchased D&O Insurance at policy bazaar and found it easliy accesible. I will surely recommend this as it safeguards the officials of the companies from personal losses resulting from legal action against them. Thanks for this amazing policy which helped me the lot
Madurai
4.5 October 03, 2022
Dinesh
Extensive Coverage
We thoroughly checked all the benefits and features and decided to buy a contractual liability policy from Policybazaar. It provides all the necessary features to safeguard our business against any loss.
Bhuj
4.5 October 02, 2022
Adarsh
Easy To Buy
It was easy to buy insurance from Policybazaar and customer support was also amazing to clear all the doubts. Contractual liability insurance is essential for my business and I could not get a better deal than this.
Chandigarh
4.5 October 01, 2022
Shiv
Easy Plan Comparision
An ideal Contractual Liability Insurance policy purchased to protect our business that we ecounter in our everyday operations. Policybazaar offers a platform to compare multiple plans.
Valsad
4.5 September 30, 2022
Ravish
No Broker And Paper Work
Great experience at Policybazaar. We did not know that buying Contractual Liability Insurance could be that easy. Also there is no broker and paperwork.
Himachal Pradesh
4.8 September 29, 2022
Ashwani
Perfect Insurance Coverage
I purchased Contractual Liability Insurance from Policybazaar and the coverage they provided is perfect to keep my hardware business safe various unforeseen instances.
New Delhi
5 April 10, 2022
Juhi
Legal Cover
I was looking for a directors and officers liability insurance online. I wanted to cover the working officials with a legal coverage in case any of the customer sues them after getting affected by any of their decisions. So it went on to the Policybazaar website where i could get a plan that provides me with legal coverage. Thanks Policybazaar.
Faridabad
4.5 April 07, 2022
Mukesh
Legal Cost Covered
I got the directors and offiers of my organization covered under the directors and officers liability insurance policy. It covers the legal cost in case anyone sues the diector or officer for any decision made.
Kannur
5 April 04, 2022
Punit
Easily Renewed
I purchased DandO insurance plan an year ago and it was about to expire so i went on the Policybazaar and filled my policy number and accessed my account and easily renewed the insurance plan.
Bikaner
4 April 01, 2022
Tarun
Easily Renewed
I purchased a DandO insurance policy online an year ago. It was about to expire so i had to look for a website where i can easily renew it. I went on the Policybazaar website and easily renewed the policy in a matter of seconds. Thank PB
Amritsar

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