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Directors & Officers Liability Insurance

Protect your company's decision-makers from liabilities and safeguard their personal assets in case of a legal lawsuit.

Coverage worth

₹50 Lakhs

at just

₹7,000^*

annually

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₹5,000 Cr+ of cumulative risks insured

What Is

Directors & Officers Liability Insurance?

Directors and Officers (D&O) policy protects directors, board members, and other individuals in management and supervisory positions from possible legal liability if they are indicted for decisions made to run a business.

This type of insurance protects the personal assets of the directors and officers along with their spouses and compensates them for any settlements or legal fees they incur as a result of lawsuits.

The 3 Categories of D&O Insurance

1. Side A

Direct Indemnification

The D&O policy offers liability cover for company managers, officials, and directors to protect them from claims which may arise from the decisions and actions taken within the scope of their regular managerial duties.

2. Side B

Company Reimbursement

When a company indemnifies (provides financial protection) its directors or officers for a covered claim under the policy, Side B Coverage ensures that the company is reimbursed for the expenses they've incurred during the process. In essence, it's an insurance policy that protects the company's financial interests by reimbursing them after they've supported their insured individuals in a legal matter.

3. Side C

Coverage for Entity

Side C coverage basically covers the companies that are listed on the Stock Exchange. It covers the claims and liabilities arising from security-related grievances. It indemnifies the company for legal costs incurred while dealing with such claims or liabilities related to the securities traded. Thus, if the shareholders or any stakeholders sue the company for any reason related to securities traded on the stock exchange, Side C will cover costs incurred by the company in defense of the lawsuit, including legal fees, expert witness fees, and other related expenses.

Advantages of D&O Insurance

Offers protection to directors & officers

Saves personal assets from lawsuits

Important for both large and small-scale businesses

Helps attract & retain the best talent

Who Needs

Directors & Officers Liability Insurance?

Any private or public company with corporate boards or advisory committees should have a D&O policy to protect their C-suite executives. Today, company owners are vulnerable to lawsuits from regulators, shareholders, vendors, customers, competitors, employees, and government bodies. It's one of those "must-have" policies for every company because it protects them in the event of an expensive lawsuit.

What factors can affect coverage for a D&O policy?

Risk appetite

Financial background

Company size

Past lawsuit history

Business age

Why Get

Directors & Officers Liability Insurance?

A director or officer might face many types of financial risks as part of their job. D&O insurance provides an easy way to protect the interest of their senior officers and board members. The policy protects them from the following potential problems -

Allegations by other stakeholders or shareholders
Allegations of sexual harassment, discrimination, and other employment violations
Accounting mistakes & exposure to mergers & acquisitions
Regulatory investigations initiated by the government, a professional, or a statutory body
Corporate governance lapses

Who can Sue the Directors or Officers of the Organisation?

Suppliers

Regulatory Bodies

Other Stakeholders

Employees

Clients

Shareholders

Competitors

Coverages & Exclusions in

Directors & Officers Liability Insurance

CoveragesExclusions

D&O insurance offers many benefits. Some of the major coverages in the insurance policy are given below -

Bail and Bond Costs

D&O policy covers the costs of securing bail and bond for directors and officers, which may be in connection with any criminal proceedings arising from their duties as directors or officers of the company.

Legal Representation Cover

It includes defense costs incurred by an insured on account of the attendance and/or provision of documents or information to any investigation, as required by the investigator.

Public Relations Cover

This cover reimburses the costs associated with managing and mitigating the negative impact on the company's reputation, arising out of duties performed by the directors and officers on behalf of the company.

Extradition Cover

This coverage protects a company if a director or officer is arrested or detained in a foreign country and the company needs to pay for the costs associated with his extradition back to the home country.

Court Attendance Costs

This coverage provides protection from reasonable costs and expenses incurred by the insured due to required attendance at court proceedings, hearings, trials, and depositions related to the defense of a claim.

Kidnap and Ransom Costs

This coverage provides relief from the costs associated with any event or connected series of events of kidnapping, seizing, or detaining an insured person by force or fraud, for the purpose of demanding a ransom.

Self-reporting Expenses Cover

This coverage helps to protect company directors and officers from the financial burden of expenses associated with self-reporting a potential violation or claim to the relevant Governmental, judiciary, or regulatory authorities.

Investigation Costs

It covers the reasonable fees, costs, and expenses incurred (with the insurer’s prior written consent) by or on behalf of an insured person, in relation to preparing for and attending an investigation.

Crisis Communication Cover

It covers the reasonable costs, charges, fees, and expenses incurred by an organization, in attaining the services of any public relations firm or crisis management firm to advise the organization for managing public communication.

Dedicated Additional Limit for Non-executive Directors and Officers

With this add-on cover, you get an extra layer of protection that is added to the overall coverage limit for non-executive directors and officers of a company.

Some of the major exclusions in the insurance policy are given below -

OFAC Sanction Clause

OFAC stands for Office of Foreign Assets Control and is a government agency of the US Treasury Department that enforces economic and trade sanctions against countries, organizations, and individuals. If a claim is made against a director or officer for something related to OFAC sanctions, they will not be covered under this policy.

Product Liability

The clause excludes any claims or losses that are related to product liability. Product liability refers to the legal responsibility of manufacturers, distributors, and sellers for any harm caused by a product they have produced or sold. If a claim is made against a director or officer for something related to product liability, they will not be covered.

ERISA

The Employee Retirement Income Security Act (ERISA) of 1974 establishes minimum standards for pension plans in the private industry under U.S. federal tax and labor laws. It regulates employee benefit plans, including retirement plans, health plans, and other types of benefits.If a claim is made against a director or officer for something related to ERISA, they will not be covered under this policy.

Opioids and Narcotics

Opioids are a class of drugs that are used to relieve pain and include drugs such as fentanyl, oxycodone, and morphine. Narcotics are a class of drugs that are used to relieve pain and include drugs such as cocaine and heroin. This means that if a claim is made against a director or officer for losses arising because of their decisions related to opioids or narcotics, they will not be covered under this policy.

Asbestos

Asbestos is a naturally occurring mineral that has been used in various products, including construction materials and has been linked to various diseases such as lung cancer, mesothelioma, and asbestosis. If a claim is made for something related to asbestos, they will not be covered.

Financial Insolvency

Financial insolvency refers to the inability of a company or individual to pay their debts as they come due. This means that if a claim is made against a director or officer for something related to the financial insolvency of the company, they will not be covered under this policy.

E-smoking Device

E-smoking Device Exclusions in Directors & Officers Insurance means exclusion for any claims or losses that are related to electronic smoking devices or e-cigarettes. If a claim is made for something related to electronic smoking devices, they will not be covered.

War

If a claim is made against a director or officer for something that happened as a result of war, they will not be covered under this policy.

Future Offering of Securities (IPO)

It refers to excluding any claims or losses that are related to initial public offerings (IPOs) of securities. This means that if a claim is made against a director or officer for something related to an IPO, they will not be covered under this policy.

No Cover for Auditors Qualification, Emphasis Matter, a Contingent Liability, if any

If any claims or losses arise against the Director and Officer and the same is related to auditors' qualifications, emphasis matters, or contingent liabilities, they will not be covered.

Bribes and Commission

Directors & Officers policy excludes claims and losses arising from bribes and commissions.

Money Laundering

Money laundering is a process that criminals use to hide the illegal source of their income. If a claim is made against a director or officer for something related to money laundering, they will not be covered under this policy.

Directors & Officers Claims Examples

Incident 1Incident 2

Employees’ Claim for Outstanding Contract

Incident

Multiple employees initiated legal proceedings against the subsidiary of a policyholder in China claiming unpaid contractual benefits and economic compensation.

Resolution

The litigation was in China and the Insurer appointed a law firm in China for translation and better defense strategy. The outcome of the litigation was favourable and only the defense cost was incurred which was reimbursed under the policy.

About Directors & Officers Liability Insurance

What is the jurisdiction/territory of the claim?

What limits do you need?

Does D&O insurance cover owners?

As a director or officer can you become personally liable for your actions?

Are directors vs directors disputes covered?

Are the subsidiary's board covered under the directors & officers liability insurance?

Who selects defense counsel for a covered D&O claim?

Does a small business need liability insurance for directors and officers?

What are the most common D&O claims?

What are directors personally liable for?

What is the difference between D&O and management liability?

Does Directors & Officers' liability insurance covers breach of contract?

Can a director of the company be sued for negligence?

Who is insured in D&O insurance?

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This is an article by YouStory written by Palak Agarwal and published on October, 2022

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