The Ultimate Guide to D&O Insurance

Have you just been appointed a Director of a company, and is afraid of your potential liability?

D&O (Directors & Officers) Liability Insurance is designed to manage your risk as a director.

In this guide to Directors & Officers Liability Insurance, you will learn:

  • What is Directors & Officers Liability Insurance?

  • What risk events does the insurance cover?

  • What is the costs can the insurance compensate?

  • Some considerations you should take before taking up an insurance

What is Directors & Officers Liability Insurance?

D&O Liability Insurance indemnifies directors and officers of a company for losses and defense costs due to legal actions brought against them. The legal actions can be both civil and criminal. This is often in addition to the company being sued on a separate legal capacity. Such claims can be made by investors, suppliers, employees, competitors, or customers.

But, you may be thinking, under what circumstances would you be sued as a director?

Here are some of the common mistakes that directors can make:

  • Failing to inform shareholders of the correct financial position of the company

  • Releasing confidential private company information unintentionally

  • Defaming a competitor

  • Failing to supervise the activities of the company

  • Breaching employment laws

  • Acting dishonestly in a joint venture

  • Breaching copyright or antitrust laws

  • Any other breach of fiduciary duties

For each of the offense, the related party can make a claim against the company and the directors.

In the event where you are being sued, a D&O Liability insurance can help to cover:

  • Legal costs in defending your case

  • Investigation costs incurred by engaging third parties

  • Civil fines and penalties that are insurable by law

With the above being said, D&O liability insurance does not cover criminal prosecutions done by the director or officer

Who Will Need D&O Liability Insurance?

As long as you are a director or corporate officer (for e.g. corporate secretary) of a company, you will benefit from D&O Liability Insurance. You may also offer the insurance as part of a package to attract talents to your board.

It is a myth that only directors of a public company require a D&O insurance. D&O insurance can also help private companies and organizations especially when:

  • The company is seeking venture capital funding;

  • The company is a non-profit organization;

  • The company is a financial institution;

  • When you are attracting a reputable director to your board;

Even when your company did not meet the above conditions, D&O insurance can be useful for small businesses because:

  1. You are more likely active in managing your business. As you are more involved in your business, the more likely you will be sued if you make a
    mistake;

  2. As you may not have the resources to hire external legal consultants, you may make mistakes in matters such as employment law or tax;

  3. Even when you did not make mistake, costs of defending a legal action against you can quickly add up to a significant amount; and

  4. A general liability insurance usually only covers the company’s liability, but not your personal liability as a director;

Therefore, it is beneficial for every company to have a D&O liability insurance.

Considerations in Buying a D&O Liability Insurance

Amount of Coverage

D&O insurance is usually sold in increments of $1 million coverage. You should assess what’s your potential risks being a director of the company. The bigger the company, the higher risk you are having as a director.

Also, if you are a director in industries which are heavily regulated, such as banks, you may require more coverage.

Types of Claims

Always read the fine print to ensure that the policy covers a wide range of claims, from employee lawsuits, criminal investigations to regulatory actions.

However, please note that the typical exclusions, such as fraud are excluded. The exclusion clause will only be applied when either the court has ruled that you have conducted fraud, or you have admitted to the crime.

If you defend a criminal prosecution successfully, you can still claim the legal costs with your D&O insurance.

Scope of Coverage

You might also want to determine whether the insurance extends the coverage to the company as well. Sometimes, legal actions can be brought against both the company and its directors. However, if you have a general liability insurance in place, you should not have to worry about this.

You should also check that the policy cover innocent directors if one of them is found guilty of criminal misconduct.

Reputable Insurance Company and Agent

Having a reputable insurance company and an agent will give you the assurance that your risks are being well-managed.

A well-qualified agent, like Anthola, will also be able to advise on your coverage needs, specific to your situation and industry.

Conclusion

No matter you are a director or corporate officer of a public or private company, profit or non-profit organization, a D&O Liability Insurance sets your mind at ease. With the insurance, you can concentrate your effort on performing your fiduciary duties that will benefit the company.

Do you want to manage your risk as a director? Please consider insuring your risk with Anthola’s Directors and Officers Liability insurance. Contact us for a free consultation.