The directors and officers of a company or organisation don’t have it easy. The responsibilities and duties of the upper management are vast and their obligations are becoming more and more complex. They answer to their companies, their employees, the shareholders, the beneficiaries, the investors and the companies’ clients, and the laws (not only concerning their fields’ regulations, but also concerning climate change, cyber risks and data privacy).
Nevertheless, even the best managers are only human. Regardless of whether the business in question is big, medium or small, mistakes can happen, erroneous decisions can be made.
All of this makes directors and officers prone to the risk of legal actions against them. Shareholders may suspect mismanagement and decide to sue, they may be sued for wrongful acts, errors in judgement, improper management, conflicts of interest, governments or regulatory agencies can investigate suspected irregularities, and so on. Even in cases where wrongdoings aren’t found, these claims can cost the company or the organisation financially, or in some cases have a negative impact on their public image, should action not be taken promptly.
As one of the business’ biggest assets, directors and officers should be protected by such claims. Not only as a mean to protect the company, in case it’s liable as well in some way, but as a mean to attract and keep good senior management members. This is why when it comes to company insurance d&o coverage is crucial. Directors and officers insurance can provide cover for a variety of claims against the policyholder.
Understanding D&O Insurance Liability Policies
Directors and officers insurance is payable to the directors or officers directly, or to the companies as reimbursement. It has been developed as a protection of the board of directors, or any individual that serves as a director or an officer in a business or an organisation. With directors and officers liability insurance d&o are protected from personal losses, and businesses or organisations can be indemnified for any legal fees or other costs sustained during the lawsuits. In fact, one of the main reasons for providing it is so that personal financial loss isn’t an issue for the individuals occupying these positions.
Directors and officers insurance policies usually run for 12 months, but individuals that formerly worked as directors or officers in a company may become liable even after they leave the company. This is why it´s prudent for companies to get a policy that also includes former occupants of these positions.
The liability insurance for directors and officers covers anything from legal costs, damages, settlements, public relations to bail bond expenses, defence costs and prosecution costs. With all the potential penalties, having a d&o policy can guaranty an immediate and effective response, which may be crucial for the outcome of some claims. However, criminal acts may be excluded from some d&o insurances.
Each company or organisation is different and has responsibilities towards different individuals and entities. This is why before purchasing liability insurance d&o it’s vital to have a professional insurance broker study your particular case, and advise you on which policy would provide cover for all your specific needs. They will be able to make realistic predictions about the events that could possibly cause a claim, and offer the appropriate coverages.
What You Need to Know About D&O Insurance Claims
When obtaining insurance for directors and officers, it’s crucial to understand exactly what the insurance company covers. Regardless of the insurance company, in order to be able to claim coverage or compensation, you need to follow some simple rules, so they don’t reduce or negate you the payment.
In general, you should follow the policy rules. If a claim is made against you, or you become aware of a possible claim, you should immediately contact the insurance company. If you fail to do so, the insurance provider might refuse your claim.
Also, if someone makes a claim against you, you shouldn’t admit responsibility or promise or offer payment. In fact, you shouldn’t communicate directly with them in any way. The negotiations should be led by attorneys and the insurance company. The best possible outcome of the claim against you is not only favourable for you, but it’s also in the best interest of your insurance provider.