The Key features of Directors and Officers Liability Insurance Policy are as follows:
Advancement of Defence Costs:
All D&O Liability Insurance Policies offer Advancement of Defence Costs as a key feature. Advancement of Defence Costs means that the Insurance Company will not wait for the Final Judgment before starting to pay the Claims Expenses. The Insurance Company will start paying those Defence Costs as soon as the Insured starts incurring them.
Right to Defend Cover:
Liability Policies are of 2 types: Duty to defend and Right to Defend.
Right to Defend means that the Insured Party has the right to select its own lawyer with the consent of the Insurance Company and go ahead with the litigation. There is a reason why Financial Line Policies especially the D&O Policies, have a Right to Defend Form. Imagine if there is a claim on the CEO of a big company in India. The CEO would prefer a reputed lawyer to defend him rather than a lawyer selected from a Panel of Lawyers appointed by the Insurance Company under the Duty to Defend form of the Casualty Liability Insurance Policies. Right to Defend Form is one of the important features of the Directors and Officers Liability Insurance Policies.
Claims Made Principle:
The Claims Made Principle says that the Claims should be made and reported to the D&O Insurance Company during the Policy Period. Many times, the Insured does not inform the Insurance Company about a Claim Circumstance which might lead to the Claim getting rejected.
Coverage for Subsidiaries:
D&O Liability Insurance Policies also provide Coverage for Subsidiaries. Also, if the Insured Party adds any new subsidiary during the Policy Period, for a certain threshold of something like 20% of the consolidated asset size of the Insured, the Subsidiary gets automatically added in the Policy without any requirement of approval from the Insurance Company.
Outside Directorship Cover
Another important feature under the Directors and Officers Liability Insurance Policy is the Outside Directorship Cover.There are times when the Insured Company purchases a 5%-10% stake in another company and asks one of their directors to go and sit on the board of the Investee Company. The Director of the Insured Company who is sitting on the Board of the Investee Company is covered against any claim on the Directors and Officers of the Investee Company by the D&O Liability Insurance Policy of the Investor Company.
For eg: Consider a company ABC Ltd. which has purchased that 15% stake in XYZ Ltd. ABC Ltd has nominated one of their directors to go and sit on the board of XYZ Ltd.
Now, if there is a D&O Liability Claim on the Directors and Officers of XYZ Ltd and if that XYZ company does not have a D&O Policy, the Director of ABC Ltd who is sitting on the board of XYZ Ltd, will also get sued because the entire Board has got sued for that particular D&O Claim. In such a case, the DNO Liability Insurance Policy of the ABC Ltd will provide protection to that outside entity director. It will not provide protection to any other director, but only the outside director of ABC Ltd, who has been asked to go and sit on that board of XYZ company.
Cover for Retired Directors - Lifetime Cover:
A Directors and Officers Liability Insurance Policy provides Lifetime Cover to the Retired or Resigned Directors along with the Current Directors as well. This is an important cover since Directors can also be sued after retiring for decisions they took while they were working.
Regulatory Crisis Response Cover:
D&O Liability Insurance Policies are seeing a lot of Regulatory Claims where there are a lot of investigations against the Directors and Officers. When there is an investigation against the Director or Officer, they have to hire a lawyer to defend themselves, or probably a chartered accountant or auditor to present the case.
In such circumstances, all those Professional Fees which are charged by these Professionals or Organisations are covered under the Regulatory Crisis Response Cover.
Another important feature of a D&O Liability Insurance Policy is its provision for Emergency Costs. Any Liability Insurance Policy does not allow the Insured Party to accept any liability or to make any payments in any claim without the consent of the Insurance Company.
But there are 2 policies: One is the Directors and Officers Liability Insurance Policy and another is the Cyber Insurance Policy, where there is a provision of Emergency Costs. Such a provision is included in the D&O Policy because there could be an emergency situation, wherein the Company or the Directors or Officers are not in a position to take the consent of the Insurance Company before going ahead with the litigation. Such Costs can be covered under the Emergency Costs section of the D&O Liability Insurance Policy.
Public Relation Expenses Cover:
DNO Liability Policies also provide cover for Damage to Reputation. Sometimes, if there are false allegations against the Company and its Directors or Officers, these allegations may be published in the media which may result in an adverse impact on their reputation. The DNO Liability Insurance Policy provides a Cover for Damage to Reputation or Cover for Public Relation Expenses wherein the Insured Party can hire a PR Firm to refute the false allegations made against them.