Directors & Officers Liability Insurance
What is Directors & Officers Insurance?
A D&O policy protects a firm’s Directors, Management and Trustees against alleged “wrongful acts” leading to financial losses to third parties. Defence costs, lost income arising from time taken to defend the actions, plus compensation awards, and third party costs, if the defence is unsuccessful are all covered under the policy. The results of any regulatory or criminal prosecutions arising from the same incident can also be covered.
The policy is usually taken out by the company, but it is the management team and directors who are covered, although policies are often extended to reimburse the company for any costs and/or damages, that they may be required or permitted to pay to protect their senior teams from litigation.
Why should a company take out a D&O policy?
• A D&O policy is very flexible and should help to create a risk-free environment in which a management team can flourish. Entrepreneurial activity cannot prosper against a backdrop of fear of financial losses in the event of an error or an honest mistake being made. This policy will protect them in these circumstances.
• Claim awards and litigation costs can be substantial and are increasing. Few international staff will join a company where their normal business duties will expose them to financial ruin. Therefore, a D&O policy will assist a company to attract and retain high calibre staff, Trustees or Non-Executive Directors.
• Changes in the International Regulatory and Fiscal landscape are now part of our everyday business life, but the increased complexity, and the variances between countries, is difficult to keep abreast of. This increases the potential for ‘wrongful acts’ to occur, making a D&O policy even more essential for any company.
What does a D&O policy cover?
A D&O policy is normally arranged to cover the Directors, the Senior Management, and the company itself; and it also protects former Managers and Directors employed by the company at the time that the alleged misdemeanour occurred.
Typical scenarios leading to D&O claims include:
- Employment practice and HR activity
- Breach of statutory, regulatory, or fiscal regulations
- Financial and reporting errors or omissions
- Shareholder actions
How can we arrange D&O cover?
With such a complex, and potentially damaging exposure to financial losses and sanctions facing your company, we recommend that you seek professional advice to ensure appropriate protection is arranged.
Sovereign Insurance Services would be delighted to discuss your requirements and assist you to choose the correct policy and provider for your needs.