Directors and Officers Insurance |(D&O)|
D&O Directors and Officers Insurance Explained | (D&O) |
Contact us for a no obligation directors and officers insurance quote today!
(D&O) Insurance Explained
Company directors & officers insurance (D&O) operate in an extremely complex and difficult business, legal and regulatory environment. While you cannot avoid the challenges and risk exposures that arise, you can take steps to protect your own personal assets. Directors & Officers Liability insurance protects the personal assets of corporate directors and officers, along with their spouses, in the event they are personally sued by vendors, employees, competitors, investors or other unknown parties for actual or alleged wrongful acts. Directors & Officers insurance is the financial backing for a standard indemnification provision, which holds officers harmless for losses due to their role in the company.
D&O insurance policies offer liability cover for company managers to protect them from claims which may arise from the decisions and actions taken within the scope of their regular duties.
What is D&O Insurance?
D&O insurance policies offer liability cover for company managers to protect them from claims which may arise from the decisions and actions taken within the scope of their regular duties. As such, Directors and Officers insurance has become a regular part of companies risk management.
Companies purchase D&O cover because managers can make mistakes. Directors and Officers Insurance coverage includes financial protection for managers against the consequences of actual or alleged “wrongful acts”. Policies cover the personal liability of company directors but also the reimbursement of the insured company in case it has paid the claim of a third party on behalf of its managers in order to protect them.
Coverage is usually for current, future and past directors and officers of a company and its subsidiaries. D&O insurance grants cover on a claims-made basis. This means that claims are only covered if they are made while the policy is in effect or within a contractually agreed extended reporting period, which can extend up to another 72 months or even longer in some countries.
Coverage does not include fraudulent, criminal or intentional non-compliant acts or cases where directors obtained illegal remuneration, or acted for personal profit.
Therefore, Directors and Officers Insurance raises many important questions which companies must face: How much is enough? What and who is covered – and not covered? Should small-to-medium sized enterprises (SME) purchase D&O? What does the typical program look like? How can risk management protect officers from the many perils they face in today’s business environment?
5 key insurance issues
- Increased corporate governance means more D&O exposures
- D&O insurance covers claims resulting from managerial decisions that have adverse consequences
- D&O insurance is a complex cover requiring attention to what is and isn’t covered
- Common risk scenarios include failure to comply with regulation or laws, reporting errors or misrepresentation. Common exclusions include fraud, intentional non-compliant acts and property damage
- International insurance programs necessary for companies with global subsidiaries and offices
Who is covered?
- Past, present and future directors
- Non-executive directors
- Employees in a managerial or supervisory capacity
What is covered?
- Allegation of a wrongful act
- Costs and expenses of an insured e.g defense costs
- Financial losses where the insured is held liable
Who is covered?
- Stockholders, investors, creditors, banks
- Supervisory board
- The company itself, employees
- Regulators, state authorities, unions
- Customers, suppliers, competitors
What is covered?
The core purpose of a Directors & Officers Insurance policy is to provide financial protection for managers against the consequences of actual or alleged “wrongful acts” when acting in the scope of their managerial duties. The D&O policy will pay for defense costs and financial losses. In addition, extensions to many D&O policies also cover costs for managers generated by administrative and criminal proceedings or in the course of investigations by regulators or criminal prosecutors. These coverage extensions are gaining more and more importance among company directors. In ths way, managers receive comprehensive, integrated cover that ensures them a reliable, consistent and structured legal defense.
What is not covered?
A D&O policy does not cover fraudulent, criminal or intentional non-compliant acts. Nevertheless, innocent directors remain fully covered if they are co-defendants, even if the acts of their colleagues were intentional or fraudulent. Directors and Officers Insurance will also not cover cases where directors obtained illegal remuneration, or acted for personal profit. All activities which are covered by another insurance policy, such as Professional Indemnity, are either excluded in a D&O policy or the D&O cover is only provided after erosion of that other policy.