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Directors and Officers
Liability Insurance

Q: What is the difference between D&O and management liability?

Certain differences between the two are as follows- a. Coverage: D&O insurance is specifically designed to protect directors and officers from claims arising from their roles in the company. Management liability insurance, on the other hand, provides broader coverage for claims against the company's management, including claims for employment practices liability, fiduciary liability, and crime. b. Policy terms: D&O insurance policies are often designed with specific limits for each insured person and may have separate limits for defense costs and indemnification. Management liability policies may have aggregate limits that apply to all insured and may include sub-limits for specific types of claims. c. Triggering of Claims: D&O insurance is typically triggered by claims made against the directors and officers during the policy period. On the other hand, management liability insurance can be triggered by a wider range of events, such as regulatory investigations or employee lawsuits.

Protect your company's decision-makers from liabilities and safeguard
their personal assets in case of a legal lawsuit

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.

The 3 Categories of D&O Insurance

Advantages of D&O Insurance

Who Needs Directors and Officers Liability Insurance?

Factors can affect coverage for a D&O policy ?
Risk appetite, Financial background, Company size, Past lawsuit history, Business age

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.

Why Get Directors and 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. The policy protects them from the following potential problems

1. Allegations by other stakeholders or shareholders.
2. Allegations of sexual harassment, discrimination, and other employment
violations.
3. Accounting mistakes & exposure to mergers & acquisitions.
4. Regulatory investigations initiated by the government, a professional, or a
statutory body.
5. Corporate governance lapse.

Who can Sue the Directors or Officers of the Organization?
1. Suppliers
2. Regulatory Bodies
3. Other Stakeholders
4. Employees
5. Clients
6. Shareholders
7. Competitors

Coverages

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

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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.

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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.

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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.

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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.

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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.

Exclusions

Some of the major exclusions in the insurance policy are given below –

Financial Wellness And Mental Health- Finvest India

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.

Financial Planning & Assessment in Bangalore - Finvest India

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.

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ERISA

The Employee Retirement Income Security Act (ERISA) of1974 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.

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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.

Asbestos

Asbestos is a naturally occurring mineral that has been used in various products, including construction materials and has been linked to various diseases such as lung cancer, mesothelioma, and asbestosis. If a claim is made for something related to asbestos, they will not be covered.

E-smoking Device

E-smoking Device Exclusions in Directors and Officers Insurance means exclusion for any claims or losses that are related to electronic smoking devices or e-cigarettes. If a claim is made for something related to electronic smoking devices, they will not be covered.

FAQs

Directors and Officers Liability Insurance

What is the jurisdiction/territory of the claim?

The jurisdiction limit of a claim indicates that the policy will cover only the claims lodged in the courts of the listed countries. The territorial limit relates to the location where the act, error, or omission takes place.

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.

Does D&O insurance cover owners?

Yes. D&O insurance provides coverage for losses that the company (or the business owner) incurs as a result of paying for damages and defense costs for claims brought against its directors and officers. Here, the owner/company is insured and its corporate assets are at risk.

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.

Are the subsidiary's board covered under the Directors’ and officers’ liability insurance?

Yes. D&O policy automatically protects new subsidiaries of an insured company that are acquired or created during the policy period. The automatic coverage will start with effect from the date of such creation or acquisition except:
a. The new entity is based on or has any of its securities listed on any exchange in the USA
b. It is a financial institution
c. Such creation or acquisition increases the total on solidated assets of the principal company by more than 25% (as per the most recent audited, consolidated financial statements)

Who selects defense counsel for a covered D&O claim?

D&O policies typically allow the defendant insured to choose their preferred defense counsel, subject to the prior consent of the insurer. Insurers, of course, would seek to pay only reasonable and necessary defense costs. Therefore, an insured should select a counsel experienced in the field of law that is related to the concerned litigation and whom the insured trusts.

What is the most common D&O claims?

Some of the most common D&O insurance claims include:
1. Breach of fiduciary duty
2. Misrepresentation
3. Insider trading
4. Failure to comply with laws or regulations
5. Mismanagement
6. Securities fraud
7. Employment practices

What is the difference between D&O and management liability?

Certain differences between the two are as follows-
a. Coverage:
D&O insurance is specifically designed to protect directors and
officers from claims arising from their roles in the company. Management
liability insurance, on the other hand, provides broader coverage for
claims against the company’s management, including claims for
employment practices liability, fiduciary liability, and crime.
b. Policy terms:
D&O insurance policies are often designed with specific
limits for each insured person and may have separate limits for defense
costs and indemnification. Management liability policies may have
aggregate limits that apply to all insured and may include sub-limits for
specific types of claims.
c. Triggering of Claims: D&O insurance is typically triggered by claims
made against the directors and officers during the policy period. On the
other hand, management liability insurance can be triggered by a wider
range of events, such as regulatory investigations or employee lawsuits.

Can a director of the company be sued for negligence?

Yes. If the directors fail to exercise reasonable care and skill in carrying out their duties, they can be held personally liable for any resulting financial damage and can be sued for negligence. Negligence claims against directors can arise from other situations as well such as failure to properly oversee the management of the company, failure to comply with laws or regulations, failure to disclose material information to shareholders, or failure to act in the best interests of the company.

Who is insured in D&O insurance?

The insured person is the individual or business entity that receives financial support after an insurance claim is filed and verified. He is covered under the policy.