Litigation has increased tremendously in recent times. The cost of defending against such litigations has also shown a consistent upward trend.
Employees today are completely aware of their rights and are not afraid to approach the courts to protect them. Similarly, shareholder activism is also on the rise and there are incidents of shareholders approaching courts against the Directors and Officers to protect their rights.
This is what makes a D&O Insurance Policy an absolute necessity in today’s times. Companies which do not purchase a D&O Policy face the risk of sustaining severe losses which may make it difficult for them to recover.
What is a D&O Policy?
A D&O Liability Insurance Policy is absolutely necessary for senior management and their organizations. A D&O Policy protects the Directors and Officers if they are sued for any negligent act or any alleged wrongdoing while managing the company.
Directors and Officers owe a responsibility and duty of care towards the company’s employees, customers, regulators, shareholders etc. As a result, these directors can be held liable for any breach of duty towards any of the company’s stakeholders. In such cases, a D&O Policy will protect the directors and officers from the ensuing litigation by covering the defence costs and court awards.
What are the risks if a Company does not purchase a Directors & Officers Insurance Policy?
A D&O Policy protects the directors and officers from any wrongful act committed by them in their managerial capacity. Today, the number of lawsuits as well as the costs associated with defending oneself against such lawsuits is extremely high.
If the company directors are not protected with a D&O Insurance Policy, the company and the directors will have to bear such expenses out of their own pocket.
Sometimes, the damages awarded by the court may be so high that it may put a financial strain on the company’s finances and may even put the director’s personal assets at risk.
Thus, purchasing a D&O Policy will allow the directors to take decisions on the company’s behalf freely secure in the knowledge that they are secure in case something goes wrong.
What are the common sources of claims under a D&O Insurance Policy?
The sources of potential litigations that Directors and Officers face are endless. However, the common sources of litigations are as follows:
- Regulatory Authorities – The company directors can be held responsible by regulators for failure to comply with regulations or breach of regulations.
- Customers – Customers can sue the company directors for misleading claims about their products. For eg: if the company’s directors promise that their medicine can cure certain illness without adequate proof, the customers may sue the director for the same.
- Shareholders – Litigations by shareholders have been extremely common in recent times. Shareholders may sue the company for poor corporate governance, decisions which resulted in financial losses for the company etc.
- Employees – Employees may sue the Directors and Officers for wrongful termination, sexual harassment, or discrimination.
- Emerging Risks – In today’s fast changing environment, the risks faced by the Directors and Officers are ever evolving.
For eg: Today most business happens online. This has led to increase in data breach incidents and cyberattack. The losses from the same will be covered under a Cyber Insurance Policy. However, the directors and officers are also at a risk for being sued for negligence in not having proper data protection measures in place. This risk of negligence has to be covered under a D&O Insurance Policy.
What is the Entity Cover under a Directors & Officers Insurance Policy?
Only Directors and Officers are covered under all parts of the D&O Liability Policy, whether investigation, emergency, or anything else. However, the coverage does come with a few extensions below that are sold as add-on covers:
- Entity Securities Cover – This extension provides indemnity to the company for securities related claims. This cover is useful for companies whose stocks are listed on the stock exchange.
- Entity EPLI Cover – It protects the company from employment practices related claims such as discrimination, wrongful termination etc. The base Directors and Officers Insurance Policy will cover employee claims only against the directors while Entity EPLI cover will cover claims against the company.
Contact Qian Insurance Broking for more information on D&O Policies
I hope you would now have understood the importance of a D&O Insurance Policy. If you feel the need of securing your organisation with a Directors and Officers Insurance Policy, you can reach the experts at Qian by filling this Contact Form. We will respond within 24 hours.
- Directors and Officers Liability Insurance
- A must have for your organisation
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