When an organization appoints a person in a higher authority position; like the post of director, it comes with responsibilities with huge risks. So, in such a position, there is a high chance of mistakes in their decisions and such mistakes can cause a huge loss to the company. The company may also face other major issues like there are chances that people put allegations on the authorities of the company. This may lead to legal action against them. While defending them from such allegations through the legal process costs a huge amount. This can harm you financially. So, in such cases, directors’ and officers’ liability insurance comes to the rescue.
What is Director & Officers Liability Insurance?
D&O liability insurance covers the claim arising due actual or alleged wrong decisions taken by people working in a position like director or officer post. It covers the defense cost when you fight a case defending yourself. It also covers the cost of claims made by the shareholders and other third parties, when you lose the case.
But you must remember one thing, it does not mean that you can take wrong decisions intentionally after purchasing this D&O liability policy. Because this policy does not cover the claims and defense cost for intentional criminal wrongdoings.
Why should you buy Directors & Officers Liability Insurance?
If you are not sure, whether you should buy D&O liability insurance or not, then look at the reasons why it is very important to buy this policy for both the officers and the company.
- Expensive legal cost: – All the legal processes cost very high, and also the cost is rising day by day. So, in the case of an allegation of wrongdoing, when you defend yourself legally, you may have to bear a heavy cost. But if you have this policy, then the insurer will cover these expenses.
- Vulnerable shareholders’/stakeholders’ claims: – In the positions like chairman and board of directors, you can not say when stack holders will claim their shares due to any actual or alleged wrongdoings. At any moment, you can get these claims. This policy covers those claims.
- Discrimination, sexual harassment, and allegation: – This policy also saves you from employees’ allegations of discrimination and sexual harassment. This policy bears the cost of your legal defense fight.
- Directors’ and Officers’ assets are at risk: – When directors and officers are accused of violating any duties and the shareholders claim their investment, their own properties are also at risk. So, business insurance saves their properties from those claims.
- Regulatory investigation: – When a regulatory organization investigates about the allegations on officers of higher authority, they may put fine on them. This policy will cover that fine.
- Protection from bankruptcy and insolvency: – When your organization is declared bankrupt, the investors may file a case agent you. In such case, this policy will bear the cost of all the legal proceedings.
- Helps attracting talents: – When your company has D&O liability insurance, talented persons will not hesitate to join the company.
Inclusions of Directors & Officers Liability Insurance
- Coverage for retired directors: – This policy covers the loss due to actual or rumored wrongdoings even when the employees are retired from director or officer level posts or when you have left the job.
- Coverage for right to defend: – When your company defends its high authority officers legally from the allegations of wrong doing, then the cost will be covered by this policy.
- Regulatory investigation coverage: – It covers the cost of fines when any regulatory organization investigates about the allegations.
- Public relations expense: – If your organization got negative publicity due to the allegations, then this policy will bear the cost of consultation with a public relation consultant to remove that negative impact.
- Employment Practice Liability (EPL): – This policy will cover the defense cost when allegations are coming from the employees of the organizations. Allegations like wrongful termination or promotion, workplace harassment, and partiality are covered under this policy.
- Abduction response cost: – This will cover the costs in case of any kidnapping of the insured person.
- Shareholders’ claim expense: – When the officers have to pay any fees, compensation or legal charges to the shareholders, this policy covers that expense.
- Counselling cost: – In case the officers of your organization are facing any psychological disorder like depression, anxiety due to such claims or allegations, then this policy will cover that expense.
- Pollution claim expense: – In case of allegations of leakage, discharges or dispersal of any harmful gas, liquids or solids to the environment; the claim expense will be covered by this policy.
- Emergency cost advancement: – When you have to bear the defense cost or the cost of claim before the getting the consent from the insurer, then also this policy will reimburse all those costs you had to bear before the consent.
Exclusions of Directors and Officers Liability Insurance
This policy does not cover the losses to the directors or officers in the following conditions.
- Any kind of criminal or fraudulent activity
- Intentional violations of the contract
- Personal illegal activities
- Any infringement in patents or trade secrets
- Any kind of damage to the property or physical injury to therd-party
- Fine, penalties etc. for seepage or pollution
Who can be covered under D&O Liability Insurance?
Here is the list of people who can be covered under D&O Liability Insurance.
- Directors
- Managers
- Employed lawyers
- Company’s secretaries
- Officers
- Contractors
- Legal successors
Who can file a case against directors?
- Shareholders
- Employees
- Creditors
- Customers
- Government or regulatory bodies
- Suppliers
- Competitors
Factors affecting the premium amount of Directors & Officers Liability Insurance
Premium amount of directors & Officers liability insurance depends on following factors.
- Number of employees of the organization
- Size and age of the organization
- Type of business
- Number of managers, directors and officers in the organization
- Number of share holders
- Number of assets in the organization
- Liability limit opted for coverage
- Details of past claims if any
- Estimated revenue or/and profit
- Location of the organization
- Financial stability of the organization
Which business can buy a Directors & Officers Liability Insurance?
A Directors and Officers Liability Insurance policy protects a company form the internal and external claims against the directors, managers, and officers. So, the type of companies that should buy a D&O liability Insurance is given below.
- Start-ups: – As start-ups are new formed companies, these need to buy this policy. Because they can not afford the huge loss due to any kind of internal or external claim and also a single bad publicity about the company can hamper the company very badly in their growth.
- Small and medium business: – Companies with around 500 employees can also buy this policy.
- Large business: – Large business comprising of 1000 or more employees can buy this policy.
When can you claim your D&O Liability Insurance?
In the following types of claims against the directors or Officers of your company, you can claim this policy.
- Claims due to duty breach
- Claims due to regulation breach
- Claims due to bankruptcy
- Claim of investors
- Employees’ claims due to allegations like sexual harassment and discrimination
How to claim Directors’ & Officers’ (D&O) Liability Insurance?
Follow the steps given below while claiming your D&O liability insurance.
- First of all, inform your insurer immediately after a third party makes a claim or files a case.
- Fill out a claim form with all the details and sign it.
- Submit all the required documents along with your claim form.
- Then the insurer will send a team for inspection. The team will find out whether your claim is valid and whether it falls under your policy or not. After that only, it will give positive feedback to the company. So, provide all the information the team wants to know. Do not hide anything.
- After getting positive feedback from the inspection team and verifying your documents, the company will approve your claim.
Documents required to claim D&O Liability Insurance
You will have to submit the following documents while claiming your policy.
- Duly filled claim form
- Copy of your policy
- Proof of expenses
- Court’s order showing expenses incurred due to third-party claim liability
You may also need other documents as required by the company.
How to renew Directors & Officers (D&O) Liability Insurance online?
Try to renew your policy a few days before the current tenure is over to avoid cancellation of your policy. Follow the steps given below to renew your policy.
- Visit the site of your insurer.
- Log in to your account.
- Add or remove any add-ons as per your requirement.
- Then the website will show you the premium amount.
- Find the Renewal option.
- Pay the premium.
- Then the company will mail you the updated policy document. Some companies also send hard copies of the updated policy to the insured postal address.
FAQs:
1: What is Director & Officer’s Liability Insurance?
A: D&O liability insurance covers the personal liability of the director or Officer arising due to actual or alleged wrong decisions taken in their position. It covers the defense cost when you fight a case defending yourself. It also covers the cost of claims made by the shareholders and other third parties when you lose the case.
2: Why should you buy Directors & Officers Liability Insurance?
A: If you are not sure whether you should buy D&O liability insurance or not, then look at the reasons why it is very important to buy this policy for both the officers and the company.
- Expensive legal cost
- Vulnerable shareholders/stakeholder’s claims
- Discrimination, sexual harassment, and allegation
- Director’s and Officer’s assets are at risk
- Regulatory investigation
- Protection from bankruptcy and insolvency
- Helps to attract talents
3: What does D & O liability Insurance cover?
A: D&O liability insurance provides coverage for the following:
- Coverage for retired directors
- Coverage for the right to defend
- Regulatory investigation coverage
- Public relations expense
- Employment Practice Liability (EPL)
- Abduction response cost
- Shareholders’ claim expense
- Counseling cost
- Pollution claim expense
- Emergency cost advancement
4: What does D & O liability Insurance not cover?
A: This policy does not cover the losses to the directors or officers in the following conditions.
- Any criminal or fraudulent activity
- Intentional violations of the contract
- Personal illegal activities
- Any infringement in patents or trade secrets
- Any kind of damage to the property or physical injury to the employees due to such activities
- Fine, penalties, etc., for seepage or pollution
5: Who can be covered under D&O Liability Insurance?
A: Here is the list of people covered under D&O Liability Insurance.
- Directors
- Managers
- Employed lawyers
- Company’s secretaries
- Officers
- Contractors
- Legal successors
6: Who can file a case against directors?
A: Here is the list of people who can file a case against directors
- Shareholders
- Employees
- Creditors
- Customers
- Government or regulatory bodies
- Suppliers
- Competitors
7: When can you claim your D&O Liability Insurance?
In the following types of claims against the directors or Officers of your company, you can claim this policy.
- Claims due to duty breach
- Claims due to regulation breach
- Claims due to bankruptcy
- Claim of investors
- Employees’ claims due to allegations like sexual harassment and discrimination
8:Does my startup need D&O insurance?
A: Yes, Your startup should have director’s and officer’s insurance if you plan to attract top talent, secure funding, or eventually go public.
9: Is D&O Liability insurance the same as professional liability insurance?
A: No, the Directors’ and Officers’ Liability insurance policy is not the same as professional liability insurance. A professional liability insurance policy does not protect a business that offers professional services. At the same time, D and O insurance covers officers and directors for claims related to their work and duties to the business.
10: Does D&O insurance cover fines and penalties?
A: Yes, When fines and penalties are insurable by law, a D&O insurance policy will cover civil fines, and penalties levied on an insured due to violations of laws or regulations.
11: Does D&O insurance provide a legal defense?
A: Yes, It covers legal defense costs. It covers defense costs for breaches of occupational health and safety laws, including workplace death.
12: Should a small business take D&O insurance policy?
A: Yes, Small businesses and companies are more vulnerable to financial damage from litigation fees than large companies with more money and resources. That’s why every small business should take a D&O insurance policy.
13: Which incidents can lead to litigation on your Directors and Officers?
A: Including but not limited to the Incident listed below may lead to possible litigation against Directors and Officers.
- Irregularities in securities issues
- Corporate governance requirements
- Breach of duty to minority shareholders
- Management integrity issues
- Employment irregularities/harassment
- Auditing and Accounting practices
- Merger and Acquisitions
14: Which types of businesses can buy Directors & Officers Liability Insurance?
A: Today, every business requires Directors & Officers liability insurance, the type of companies that should buy D&O liability Insurance is given below.
- Startup
- Small and Medium Business
- Large business form
15: What factors affect the premium amount of Directors & Officers Liability Insurance?
A: The Premium amount of the director’s & Officer’s liability insurance depends on the following factors.
- Number of employees of the organization
- Size and age of the organization
- Type of business
- Number of managers, directors, and officers in the organization
- Number of shareholders
- Number of assets in the organization