Directors and Officers Liability Insurance

What is Director's and officers liability insurance

Directors and officers have a duty to oversee the successful achievement of goals of an organisation or a firm. Therefore there is need for an insurance for them, just like any for any other employee. This is because directors and officers can be made liable for the wrongful acts of their managerial position in a firm.

An example is when there is a wrongful trading carried out under their authorisation, or perhaps the employees are charged with non performance and neglect in a business. Depending on the policies of the firm, director's and officers (D&Os) liability insurance can be extended to them.

Directors and officers have responsibilities and authority to exercise power with regards their position in the firm. However, with such responsibilities, they are given some rules that ensure their adherence to it. Come to face it - sometimes, it is impossible to be perfect and as humans, even directors and other leaders within an organisation can err. When this happens, the company or organisation may face huge losses, for which the leadership is liable.

When an officer or director acts against the business terms, a regulatory mechanism can be taken against them, especially by shareholders in a publicly traded company. They may take the heat for actions that were beyond their control - adversely affecting their careers and livelihood. The company may also have huge losses stemming from the decisions made by these leaders. For this reason, the companies with directors and officers definitely need the director's and officers liability insurance cover.

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How it Works

Whenever big decisions are made by directors or other officers in a company, there are risks that they could make a wrong move that could cause the organisation to lose money. This means they could face criminal charges if the firm had unlimited liability. To counter this, they may need some insurance cover to help them out, should they be charged with misconduct.

Here are some scenarios where the D&O cover comes to play.

  • When the director or any other officer commits a breach of trust - meaning that they shared information with unauthorised parties, or acted contrary to the expectations of the shareholders.

  • When they commit a breach of duty. For example, when a person in leadership position absconds their work, or does a shoddy job, leading to undesired results in the company.

  • When people in leadership position act in a negligent manner, bringing liability to the organisation or company.

  • Errors in the decision making at the workplace, by the employees under the charge of the directors or other officers in the workplace.

  • Making misleading statements (which also tend to get out of hand very quickly), landing the firm into trouble.

  • Trading wrongfully, which could have legal implications.

What it covers

Director's and officers liability insurance covers the cost of defending the proceedings. It also compensates unsuccessful proceedings made in court. Moreover, it covers claims from investors and regulators. Its coverage limit is 500,000 -1,000,000 pounds per claim. Mind you, those who receive compensation are the directors and officers who have signed in with the director's and officers liability insurance.Therefore, if you have not registered with them, perhaps now is the time to do so.

Exclusions from the cover

The policy does not cover wages, fines taxes and penalties. Director's and officers liability insurance does not cover claims against the company at large. It also does not cover wrongful doings made by individuals who acts on the capacity of an officer or director.

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Who should purchase the director's and officers liability insurance?

A serious company should consider purchasing director's and officers liability insurance. A public and a private company can enjoy the advantages of being under director's and officers liability insurance cover.

How to handle liability claims.

A director or an officer has to to be keen when handling claims. He or she has to report immediately to the insurance representative upon being aware of a situation that could lead to a potential claim. The director or officer can also investigate situations that lead to claims to prevent future occurrence.

The director's and officers liability could prove to be priceless, both to the directors and officers in question, and to the company that employs them. It is always better to be safe than sorry.

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