Directors & Officers
Directors & Officers Liability Insurance
Directors are now perceived as professional managers and professionals who should be accountable for their actions. The increase in litigation against directors reflects a change in the attitude of the general public towards greater management accountability and hence the position of a Director/Officer is becoming far more onerous.
A Director/Officer is open to actions from Shareholders, Employees, other Third Parties and indeed the Company itself . He is exposed to the extent of his personal fortune.
Moreover, the revised companies Act has defined and increased the responsibility of directors/ officers at large. Major changes like introduction of class action suits, increase in civil fines and penalties, speedy disposals of disputes etc have made it all the more important to manage the risks by a comprehensive risk transfer mechanism.
What is Covered?
The Policy covers the legal liability including costs to defend any civil and / or criminal action against the Directors and / or Officers holding a responsible position in an organisation made by any Shareholder/ Employee/ Customer/ Competitor/ Member of Public or any Regulatory Body for any wrongful act, error or omission committed by them.
When the Policy is Operative?
The coverage is available only on claims made basis i.e. only when the affected party has made a claim on the Director/Officer during the currency of the Policy, irrespective of when the wrongful act/error/omission has actually occurred.
How the Policy is designed?
The Policy coverage is split into two Sections as under:-
- Company Reimbursement is insurance of the organisation itself. It covers the obligation of the Company to indemnity its Directors/ Officers to defend against any civil/criminal action. The reimbursement is limited to only the legal costs expended.
- Directors and Officers: If the action against the Directors/Officer is successful, then he is on his own and is exposed to legal costs as well as damages awarded against him. Then the Employer Company will obviously not indemnify him and this section comes in to operation, provided the Director/Officer has not acted in deliberately dishonest manner.
Whether individuals names of Director/Officers to be specified:
No it is not necessary, but the designation/rank of Officers desired to be covered should be specified.
What are the Special Exclusions?
- Fines and Penalties and claims for seepage or pollution.
- Claims following deliberate dishonesty or fraud by any Director/ Officer.
- Criminal acts, libel, slander or other defamation and professional liabilities.
Premium Rating:
Certain factors that determine the premium are:
- Past financial/ claims history
- Asset size
- Organisational structure
- Geographical spread
- Territories covered (USA Subsidiaries)
- Recent profile (mergers/ takeovers etc.)
- Sum Insured/ Deductibles
This note includes the basic aspect of the Directors and officers Liability Insurance Policy