One of least well understood insurance products in the commercial business world is Directors & Officers Liability (D&O). D&O cover was first conceived in the late 19th century and after a long period of obscurity the realisation of its necessity has now grown rapidly.

 

D&O insurance policies offer liability cover for Company Directors and Officers to protect them from claims which may arise from the decisions and actions taken within the scope of their regular duties.  It's usually paid for by the company and not individuals themselves. Depending on respective local law and policy, this may or may not be viewed by legislators as a “benefit-in-kind” for tax purposes.

 

The cover extends to all current, future and past Directors and Officers of a company and its subsidiaries and can also include non-executive Directors. In very specific cases such as securities claims, the policy can even be extended to cover claims against the company itself.

 

Regulation is becoming more prevalent in our lives and so the risk of Directors and Senior Executives incurring Personal Liabilities has increased dramatically in recent years especially in key areas such as:

 

• Inaccurate or inadequate disclosure (e.g. in company accounts)

 

• Misrepresentation in a prospectus or formal communication

 

• Decisions exceeding the authority of a company officer

 

• Failure to comply with regulations or laws

 

• Employment Practices & HR issues

 

• Shareholder actions

 

• Reporting errors

 

 

A D&O policy is also designed to provide cover for legal defence costs and where appropriate, any final settlement or compensation award. It will not cover fraudulent, criminal or intentional non-compliant acts.

 

Nevertheless, innocent directors remain fully covered if they are co-defendants, even if the acts of their colleagues were intentional or fraudulent.

 

D&O will also not cover cases where directors obtained illegal remuneration, or acted for personal profit.