Directors' and Officers' Liability Insurance

What is Directors and Officers Liability Insurance?

Directors and Officers (D&O) policy protects directors, board members, and other individuals in management and supervisory positions from possible legal liability if they are indicted for decisions made to run a business.

This type of insurance protects the personal assets of the directors and officers along with their spouses and compensates them for any settlements or legal fees they incur as a result of lawsuits.

Why do you need a Directors' & Officers' Liability Insurance?

A director or officer might face many types of financial risks as part of their job. D&O insurance provides an easy way to protect the interest of their senior officers and board members. Here are the reasons why you will really need the policy:

It protects you and your business against vulnerabilities.
In case of discrimination, harassment allegations or any other employment practice violations the business will not face losses.
Cost of regulatory investigations, defending and settling claims, as well as paying any compensation will be covered.
You can ensure that you will be complying with corporate governance requirements and other legal statutes.
It protects against the risks and financial exposures that come with managing a company.

What will a Directors and Officers Liability Insurance policy cover?

D&O insurance offers many benefits. Some of the major coverages in the insurance policy are given below -

Bail and Bond Costs

D&O policy covers the costs of securing bail and bond for directors and officers, which may be in connection with any criminal proceedings arising from their duties as directors or officers of the company.

Legal Representation Cover

It includes defense costs incurred by an insured on account of the attendance and/or provision of documents or information to any investigation, as required by the investigator.

Public Relations Cover

This cover reimburses the costs associated with managing and mitigating the negative impact on the company's reputation, arising out of duties performed by the directors and officers on behalf of the company.

Extradition Cover

This coverage protects a company if a director or officer is arrested or detained in a foreign country and the company needs to pay for the costs associated with his extradition back to the home country.

Court Attendance Costs

This coverage provides protection from reasonable costs and expenses incurred by the insured due to required attendance at court proceedings, hearings, trials, and depositions related to the defense of a claim.

Kidnap and Ransom Costs

This coverage provides relief from the costs associated with any event or connected series of events of kidnapping, seizing, or detaining an insured person by force or fraud, for the purpose of demanding a ransom.

Self-reporting Expenses Cover

This coverage helps to protect company directors and officers from the financial burden of expenses associated with self-reporting a potential violation or claim to the relevant Governmental, judiciary, or regulatory authorities.

Investigation Costs

It covers the reasonable fees, costs, and expenses incurred (with the insurer's prior written consent) by or on behalf of an insured person, in relation to preparing for and attending an investigation.

Crisis Communication Cover

It covers the reasonable costs, charges, fees, and expenses incurred by an organization, in attaining the services of any public relations firm or crisis management firm to advise the organization for managing public communication.

What's not covered?

Since we believe in transparency, here are some cases where you won’t be covered.

OFAC Sanction Clause

OFAC stands for Office of Foreign Assets Control and is a government agency of the US Treasury Department that enforces economic and trade sanctions against countries, organizations, and individuals. If a claim is made against a director or officer for something related to OFAC sanctions, they will not be covered under this policy.

Product Liability

The clause excludes any claims or losses that are related to product liability. Product liability refers to the legal responsibility of manufacturers, distributors, and sellers for any harm caused by a product they have produced or sold. If a claim is made against a director or officer for something related to product liability, they will not be covered.

ERISA

The Employee Retirement Income Security Act (ERISA) of 1974 establishes minimum standards for pension plans in the private industry under U.S. federal tax and labor laws. It regulates employee benefit plans, including retirement plans, health plans, and other types of benefits. If a claim is made against a director or officer for something related to ERISA, they will not be covered under this policy.

Opioids and Narcotics

Opioids are a class of drugs that are used to relieve pain and include drugs such as fentanyl, oxycodone, and morphine. Narcotics are a class of drugs that are used to relieve pain and include drugs such as cocaine and heroin. This means that if a claim is made against a director or officer for losses arising because of their decisions related to opioids or narcotics, they will not be covered under this policy.

Financial Insolvency

Financial insolvency refers to the inability of a company or individual to pay their debts as they come due. This means that if a claim is made against a director or officer for something related to the financial insolvency of the company, they will not be covered under this policy.

War

If a claim is made against a director or officer for something that happened as a result of war, they will not be covered under this policy.

Future Offering of Securities (IPO)

It refers to excluding any claims or losses that are related to initial public offerings (IPOs) of securities. This means that if a claim is made against a director or officer for something related to an IPO, they will not be covered under this policy.

Money Laundering

Money laundering is a process that criminals use to hide the illegal source of their income. If a claim is made against a director or officer for something related to money laundering, they will not be covered under this policy.

Which Businesses need a Directors' & Officers' Liability Insurance?

Any private or public company with corporate boards or advisory committees should have a D&O policy to protect their C-suite executives. Today, company owners are vulnerable to lawsuits from regulators, shareholders, vendors, customers, competitors, employees, and government bodies. It's one of those "must-have" policies for every company because it protects them in the event of an expensive lawsuit.

What factors can affect coverage for a D&O policy?

A director or officer might face many types of financial risks as part of their job. D&O insurance provides an easy way to protect the interest of their senior officers and board members. Here are the reasons why you will really need the policy:

Risk appetide
Company Size
Bussiness age
Financial Background
Past lawsuit history

FAQs

Is it necessary for small businesses to get a D&O insurance Liability policy?

It is better to get a D&O Liability insurance policy irrespective of the size of the business, as disgruntled individuals and shareholders can file lawsuits. With companies serving people from different domains, it is preferable to have the policy to fall back on in case of any eventuality.

Is D&O Liability insurance the same as professional liability insurance?

No, the Directors’ and Officers’ Liability insurance policy is not the same as professional liability insurance. Unlike a professional liability insurance policy, it does not protect a business that offers professional services. It comes into play only when directors and officers of the organization are named in the litigation.

What limits do you need?

An insured business can opt for any limit of the D&O liability insurance, depending on its needs, business model, and financial position. Some of the factors that can influence the limit include the size of the business, financial background, time spent in the business, risk appetite, and so on.

As a director or officer can you become personally liable for your actions?

Yes, as a director or officer of a company, you can become personally liable for your actions if you breach your fiduciary duties. If you breach this duty or engage in any illegal or fraudulent behavior, you may be held personally liable for any resulting damages or losses. In addition, you may be held personally liable for violations of various laws and regulations, such as environmental laws, securities laws, and antitrust laws.

Are directors vs directors disputes covered?

If one director sues another within the same organization, this is considered an 'Insured v. Insured' situation, and a D&O policy would typically not cover that dispute. However, there may be certain exceptions and these may vary from one insurance provider to another.