A Directors and Officers Liability Insurance is intended to protect Directors & Officers (D&O) against claims of wrongful acts in their capacity as company’s executives. In this new era of business directors demand D&O policies before taking a sit at any Board because of the risks associated with the position. Certainly this is a wise decision, as in case of a wrongful doing Directors will be forced to pay any damages, legal fees etc. from their own pockets unless they are insurer.
As the name implies D&O insurance covers the Directors & Officers of a company. However, nowadays policies cover not only the directors and the officers as such but also the company and any employees in their managerial capacity.
Prior claims, or claims that the insured is aware of, are generally not covered. However, in some instances insurance companies take the risk of prior years under the condition that the insured has been previously insured with a Directors’ & Officers’ Insurance policy with another company. This is known as, retroactive cover.
Any third party can bring an action against the company and its directors activating the policy. Shareholders, customers, suppliers, investors or even the company itself are stakeholders who can potentially bring an action against the directors.
Before the policy is issued, the insurer and the insured agreed to a specific limit of coverage (namely per claim and in the aggregate). Once the limit is used, the insured cannot claim any further remuneration by the insurance company for any future claims within the same policy year.
Standard exclusions of D&O Insurance are usually fraud and dishonesty.
As soon as the insured is informed of a claim must notify the insurer immediately. The insurer will make sure that the claim arise during the policy period. This is the reason why D&O Insurance policies are also known as “claim made” policies.
A claim can be filed in many different ways. A claim might have the form of a court proceedings or an alternative dispute resolution, ie arbitration or mediation. The insurer normally will pay on behalf of the insured all the damages imposed by the court, by arbitration or by mediation. D&O coverage should and does also pay legal costs. In some cases will also pay the court attendance for the insured person as well as the PR expenses that will occur due to the claim.
All the above however, will hold true depending on the unique circumstances of your company and the policy offered by your insurer.