Directors and officers liability insurance


What about Directors’ and officers’ liability insurance?
• breach of duty
• neglect
• error
• misleading statements
• wrongful trading

Do I need it?
If your company has directors or key managers, directors’ and officers’ liability insurance can cover the cost of compensation claims made against them by shareholders, investors, employees, regulators or third parties
Directors and officers have specific duties, responsibilities and powers relating to their positions. These are usually set out in their job description or terms of reference. If a director or officer of your company is found to have acted outside of their terms of reference, civil, criminal or regulatory proceedings can be brought against them
Directors’ and officers’ liability insurance covers the cost of defending these proceedings, as well as any compensation costs that arise from an unsuccessful defense
If directors and officers do not have insurance, they face a greater risk of not being able to defend themselves against:
• disqualification from holding the position of director
• civil proceedings which can lead to hefty legal costs and awards for damages
• criminal prosecution which can lead to fines and possible imprisonment

What it covers?
Directors’ and officers’ liability covers claims made by:
• regulators, shareholders or investors, e.g., for failure to act in the company’s best interest
• creditors
It also covers claims brought in relation to:
• breach of European legislation
• insolvency
Employment practices liability insurance can be bought as an extension of directors’ and officers’ liability insurance. It covers employee discrimination claims, e.g., for unfair dismissal, harassment, or failure to promote a person
Directors’ and officers’ liability sometimes covers defense costs arising from criminal and regulatory investigations into your company where no actual wrongful act has been alleged against a director. Contact your insurer to find out what your policy covers

What is not covered?
Directors’ and officers’ liability does not cover claims made against your organization as a whole, only those made against individuals for alleged wrongful acts carried out in their capacity as directors or officers
Who is covered?
• Stockholders, investors, creditors, banks
• Supervisory board
• The company itself, employees
• Regulators, state authorities, unions
• Customers, suppliers, competitors

Buying directors’ and officers’ liability insurance
You can buy directors’ and officers’ liability insurance directly from an insurer or from a specialist broker
5 key insurance issues
• Increased corporate governance means more D&O exposures
• D&O insurance covers claims resulting from managerial decisions that have adverse consequences
• D&O insurance is a complex cover requiring attention to what is and isn’t covered
• Common risk scenarios include failure to comply with regulation or laws, reporting errors or misrepresentation. Common exclusions include fraud, intentional non-compliant acts and property damage
• International insurance programs necessary for companies with global subsidiaries and offices
• Shareholder actions
• Reporting errors
• Inaccurate or inadequate disclosure (for example, in company accounts)
• Misrepresentation in a prospectus
• Decisions exceeding the authority granted to a company officer
• Failure to comply with regulations or laws
• Corporate manslaughter
• Insolvencies
• Creditor claims
• Mergers and acquisitions
• Divestitures
• Competitor claims
• Claims made by the company, itself
• Intentional non-compliant act
• Illegal remuneration or personal profit
• Property damage and bodily harm (except corporate manslaughter)
• Legal action already taken when the policy begins
• Claims made by other insurance
• Fines and penalties
