Directors and Officers (D&O) Insurance provides for financial protection for the organisation in the event of a claim against their directors, officers and key employees for an alleged wrongful act in a managerial or supervisory role.
Directors and Officers insurance helps businesses in making decisions and not worrying about any legal liabilities.
At a glance
- Directors’ and officers’ (D&O) claims have increased many-fold in the past 5 years, making D&O insurance more relevant than ever.
- Many businesses still fail to understand its importance in today’s business environment.
- Businesses empower the board of directors, officers and key managers to make deci-sions to create and add value. Sometimes their decision can result in financial losses and they can be held personally liable and could be involved in an expensive lawsuit.
- Directors and Officers insurance helps businesses in making decisions and not worry-ing about any legal liabilities.
Why Small Businesses Need to buy Directors’ & Officers’ insurance?
Small businesses often relate D&O insurance policy with publicly traded, large corporations. The fact that they are privately held and not listed makes them perceive that they are free from any such risk exposures.
- Small businesses have relationships with vendors, customers, venture capital funds, or other financial investors and employees. These are all external exposures for which their managers are accountable.
- Fire or a General Liability policy doesn’t respond to any legal liability o their managers.
- Small businesses are also prone to Human resource issues with respective to sexual harassment, wrong termination are
Risks covered under D&O insurance
- Regulatory investigations.
- Accounting irregularities
- Exposures relating to mergers and acquisitions
- Vulnerability to shareholder/stakeholder claims:
- Employment practice violations including harassment, discrimination allegations, wrongful termination.
- Securities claims, those related to shareholder value
Types of losses paid under a D&O insurance policy
- Defense costs – Legal expenses and costs, which the company is legally liable to investigate, defend or appeal a claim. Defense costs also include Bail bond and civil bond expenses.
- Public Relations expenses – Costs incurred to retain a public relations consultant to reduce or prevent negative publicity.
- Extradition costs – Costs to have a legal adviser or tax consultant towards advice on extradition proceedings.
- Emergency costs advancement – In the event of defense costs trigger, the com-pany can also request for payment of defense costs on retrospective basis.