Directors and Officers (D&O) Liability Insurance: A New-Age Insurance
Ankit Agrawal
Results-driven financial expert with 7+ years of experience, leading Right Financiers, a renowned insurance and investment firm since 2001. Partnering with India’s top financial providers, we deliver tailored investment, insurance and risk management solutions, empowering clients to achieve long-term objectives with maximum returns and security.
Dear All
D&O liability insurance, like other forms of insurance, indemnifies the insured against liabilities arising from specific actions.. In this case, the subject matter refers to actions brought due to alleged or actual wrongful acts committed by directors and officers while performing their duties.
Any or all officers and directors can be personally sued for decisions made—or not made—in their official capacity.
For instance, aggrieved shareholders may sue directors for negligence while signing a deal with another company.
Why is this insurance necessary?
An action against an officer or director necessitates that they defend themselves. This results in the payment of defense costs (e.g., legal fees and related expenses), compensation to the aggrieved party (if the charges are proven), and more. Such expenses may significantly affect the personal finances of officers and directors.
This is where insurance plays a role by reimbursing the incurred expenses.
Who can take the insurance?
The company can obtain insurance on behalf of its officers and directors, or they can purchase it individually. Limited Liability Partnerships (LLPs) and partnership firms can also purchase this insurance.
Who can bring actions?
a) Shareholders
b) Employees
c) Government agencies
d) Competitors, consumers, suppliers
What types of legal actions can be brought against them?
a) Misuse of funds
b) Misstatements to government agencies
c) A suit for sexual harassment
d) A suit for bribery
e) A suit for pollution
f) A suit for wrongful termination and many more.
What additional items, beyond defense and compensation, are covered?
a) Coverage for retired directors (up to six years)
b) Kidnap response coverage
c) Public relations costs (due to reputational damage)
d) Coverage for intra-insured legal actions (defense costs only)
What are the add-ons?
Generally, only the officers and directors are covered, but the entity can also add these three features to the policy
a) Entity security extension (an action related to securities issued by the company)
b) IPO extension
c) entity EPLI extension (an action on the entity against the claims by the employees that their legal rights have been violated)
What are the exclusions?
a) Intentional wrongful acts
b) Payment of fines and penalties
c) Actions brought by major shareholders
Recently, governments and other stakeholders have increasingly held individual officers personally liable for various corporate actions. Hence, it is prudent for the entities to protect their officers from such liabilities to enable them to operate in a secure and accountable environment.
Disclaimer
The content published on this blog is for informational purposes only. The opinions expressed here are solely those of the respective authors and do not necessarily reflect the views of Fintrac Advisors. No warranties are made regarding this information’s completeness, reliability, or accuracy. Any action taken based on the information presented in this blog is strictly at your own risk, and we will not be liable for any losses or damages resulting from its use. It is recommended that professional expertise be sought for such matters. External links on our blog may direct users to third-party sites beyond our control. We do not take responsibility for their nature, content, or availability.
