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What are the Exclusions under a Directors and Officers Liability Insurance Policy?

Sep 16, 2023

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Directors and Officers Liability Insurance Policy

What are the Exclusions under a Directors and Officers Liability Insurance Policy?
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One of the biggest reasons for claim rejections under an insurance policy in India is that the Insured is unaware of the exclusions under the policy. It can be a very bad situation for the Insured, since he is under the notion that he is covered under his insurance policy and later realising that the claim is not payable because the cause of the claim is excluded under the insurance policy

Thus, it is extremely important for the Insured to read the exclusions thoroughly with the assistance of an insurance broker to avoid any nasty surprises at the time of claim.

One of the most important policies is the Directors and Officers Insurance Policy and the Insured should go through the exclusions in a comprehensive manner as D&O Claims run into crores of rupees and any oversight can prove to be very costly.

**What is a D&O Liability Insurance Policy?**

A D&O Liability Insurance Policy is a type of Insurance Policy which provides cover for legal expenses and Damages for any wrongful act committed by the directors and officers in their managerial capacity. A Directors and Officers Liability Insurance Policy is also known as D&O Insurance Policy.

**What are the Exclusions under a Directors and Officers Liability Insurance Policy?**

The exclusions under a D&O Policy are as follows:

**1. Misconduct Exclusion**

The Insurance Companies do not pay for any claims arising out of any fraudulent act or dishonest act committed by the directors and officers. However, a D&O Insurance Policy has a provision of **final adjudication**, which means that the Insurance Company will pay for the defence costs for the alleged activity until formal court judgement has been given deeming the activity to be fraudulent or dishonest.

**2. Bodily Injury and Property Damage Exclusion**

A Directors and Officers Liability Insurance Policy also does not pay for any claims arising out of Bodily Injury and Property Damage suffered by third parties as the same is covered under a Commercial General Liability Insurance Policy.

**3. Insured vs Insured Exclusion**

An important exclusion under a Directors and Officers Liability Insurance Policy is the **Insured vs Insured Exclusion**. This exclusion relates to situations where one director sues another director of the same company. A D&O Policy will not pay legal expenses for such claims and the directors and officers will have to bear the legal expenses for such claims out of their own pocket.

**4. Prior claims and circumstances**

A Directors and Officers Liability Insurance Policy does not provide coverage for circumstances which might lead to a claim, and which have occurred before the commencement of the policy. A D&O Liability Insurance Policy will only provide coverage due to any unforeseen circumstances which arise after the D&O Policy starts.

**5. Shareholder Derivative Action**

Directors and Officers of the Company have a fiduciary responsibility to take decisions in the best interest of the company and shareholders. If the Directors or Officers fail to do so, then shareholders can sue the directors and officers. This is known as **Shareholder Derivative Action.** Instances of shareholders suing the directors and officers have been on the rise.

Now, Shareholders are also the owners of the company and as mentioned above, if one Insured sues another, the same is excluded under the Insured vs Insured Exclusion.

**However, most** D&O Policies** can include a carveback for Shareholder Derivative Action, an exclusion of an exclusion, which means that D&O Claims arising out of Shareholder Derivative Action can be covered.**

**6. Major Shareholder Exclusion**

As discussed above, most D&O Liability Insurance Policies cover D&O claims arising out of Shareholder Derivative Action. However, D&O Insurance Policies also have an exclusion for claims made by Major Shareholders. Thus, D&O Insurance Policy does not provide coverage for D&O claims made by shareholders who have more than a certain percentage of ownership (15%-20%) of the company.

**Does my Company need a Directors & Officers Liability Insurance Policy?**

Today, litigations against the directors and officer of the company are rising. There are many potential sources of claims for the directors and officers such as employees who can sue for wrongful termination or discrimination or shareholders who can sue for breach of fiduciary duty or competitors can sue for a wrongful trade practice.

In such a scenario, a Comprehensive Directors and Officers Liability Insurance Policy protect the directors and officers from such claims. It will also help your company to attract the best talent and protect the company from exorbitant legal fees if a claim arises.

**Qian is an expert Insurance Broker for a Directors & Officers Liability Insurance Policy**

Qian is an experienced insurance broker for Directors & Officers Liability Insurance Policy in India and our experienced team will help you with comprehensive D&O Insurance Policy Coverages. We have tied up with top D&O Insurance Providers in India and our D&O Insurance quotes are 100% affordable. We can also tailor the D&O Insurance Policy to the specific needs of the company.

If you wish to avail a Directors and Officers Liability Insurance Policy for your company, you can reach out to us at support@qian.co.in or fill this Contact Form.

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