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Directors and Officers D&O Insurance coverage by Aum Insurance Brokers

Directors and Officers Insurance Policy

D&O insurance is a vital part of corporate risk management services, protecting directors, officers, and managers from legal costs and personal liabilities arising from decisions and actions taken within their regular duties.

  • Directors and officers (D&O) liability insurance protect the personal assets of directors and officers, and their spouses, in the event they are personally used for actual or alleged wrongful acts in managing a company.

  • 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

Who needs directors and senior management?

There are many and varied groups of people or bodies who can bring an action, including employees, shareholders, customers, competitors, suppliers, government departments, contractors, creditors, regulatory bodies, etc.

What are the coverages?

Unlike many other insurance forms, D& O doesn’t have a standard insurance policy wording and hence there is a lack of uniformity in terms and conditions, as well as in the scope of coverage among insurers. Typically, D&O insurance policies provide three main types of coverage set forth in three distinct insuring agreements:

  • Side A Coverage – protects directors and officers for claims where the company is not legally or financially able to fund indemnification.

  • Side B Coverage – protects the company by reimbursing the company for amounts it pays to its directors and officers as indemnification and advancement

  • Side C Coverage – protects the company from its own wrongful acts. Side C coverage is typically limited to securities claims in the public company.

The common risk scenarios under D&O Insurance.

  • Breach of fiduciary duties.

  • Employment practice and HR issues like discrimination and sexual harassment allegations.

  • Shareholder action

  • Violation of corporate governance

  • Reporting errors

  • Inaccurate and inadequate disclosure

  • Misrepresentation

  • Decision exceeding the authority granted to a company officer

  • Failure to comply with regulations/laws

  • Corporate manslaughter

  • Insolvencies

  • Creditor claims

  • Tax liability

  • Merger and acquisitions

  • Competitor claims

  • Claims made by the company itself.

  • Liabilities under various acts.

What are major exclusions? Coverage does not include:-

  • Fraudulent, criminal, or intentional non-compliant acts.

  • Cases where directors obtained illegal remuneration, or acted for personal profit.

  • Prior pending claim

  • Major shareholders exclusion.

  • Fines and penalties.

  • Claims covered under other insurance.

  • Property injury and bodily harm( except corporate manslaughter)

What are available extensions? In addition to the three main clauses, D&O policies include agreements covering other risks and exposures, including:-

  • Employment practices liability coverage.

  • Crisis coverage .

  • Derivative investigation coverage.

  • FCPA & U K Bribery Act Endorsement.

  • Tax liability cover.

  • Corporate manslaughter.

  • OSHA endorsement.

  • Psychological support expenses.

  • Personal Reputation Coverage.

  • Asset Protection Coverage.

  • Extradition Costs.

How to determine Limits and retentions?

D&O insurance raises many important questions: How much is enough? What and who is covered? There is no foolproof way to determine the ‘perfect’ limits and retentions. However, Input from Claim studies, Information about what limit the insured’s peer companies are purchasing, what directors want, Sebi regulation, what the insured can afford, and Prevailing defense cost, etc will help you to determine the limits.

How is Premium calculated?

Unlike other forms of insurance, there is no standard wording of policy as well as a standard formula to arrive at the premium. Premiums will vary from insurance company to company and will also depend on the type of business activities engaged by the company and the form of organization.

What are the Claim Procedures?

Once a director/officer is aware of the claim, intimation should be made before the insurer. If the claim is covered, the insurer pays for the defense cost. If the claim is covered and the case is lost, the insurer pays for the case and defense costs. In some cases, the case may be settled out of court subject to the approval of the insurer. In case the alleged wrongful act is not covered, the concerned director/ officer has to pay for the defense cost and financial loss.

Does your organization require this cover?

It’s a common misconception that D&O claims are mostly a public company phenomenon. In fact, public, private, and non-profit companies all face D&O litigation risks, any business with a corporate board or advisory committee should consider investing in D&O insurance. Smaller businesses with fewer assets may need the protection just as much as large, deep-pocketed corporations.

Make the right move to protect your leadership. With tailored D&O coverage as part of your corporate risk management services, you can mitigate risks and ensure continuity. Get in touch with Aum for expert guidance and quotes.