In the modern business environment, directors and officers liability insurance is an integral part of risk management at the corporate level. Several small businesses in India are recognizing the importance of availing the insurance, to protect the interests of their directors and officers. Buying the policy from a top-rated broker is preferable. Consult with PlanCover to avail effective D&O Insurance policies that have well-defined Discovery periods.
The simple definition of Discovery period
Directors and officers insurance policy have a discovery period, clearly mentioned in its policy document. It is the period, beyond the expiry of the policy, when the insured entity can report a claim, for a lawsuit filed against it during the tenure of the insurance policy.
For instance, if a D&O policy is first purchased on January 01, 2021, the gradual expiry date of the policy remains December 31st, 2021. The insured (Company purchasing the policy) should report a claim within December 31st, 2021. In the event the insured has not renewed the policy by December 3st, 2021, they have a time period (called as discovery period) of up to 90 days before which the claims need to be reported. But the claim trigger or the wrongful act should have happened prior to December 31st, 2021.
The Discovery period is also referred to as an extended reporting period. An additional period of time specified in the insurance policy occurs after the end of the policy period. The purpose of this additional period is to give the insured additional time to report claims. Most D&O policies give the insured the right to purchase a discovery period or extended reporting period during the policy discussion. However, coverage is only available for a claim made during that discovery period when it arises from wrongful acts that took place prior to the expiration of the original policy period or prior to the inception of the discovery period.
A typical D&O policy offers 90 days extended reporting period at no additional cost. Some insurers can provide longer ones (for a price).
The policy covers current/former/future directors and officers
One of the positive features of the D&O Insurance policy is it covers even the former and future directors and officers of the company, along with the current directors and executives. Accordingly, the applicability of the Discovery period is also relevant.
Legal expenses can be claimed in the Discovery period
It is possible to make use of the discovery period and claim for legal costs to tackle a lawsuit, within the framework of the D&O Insurance policy. The policy terms and conditions give a company/director/officer the right to make claims during the Discovery period.
Know about the actual tenure of the policy
As a responsible HR Head or a senior accounts executive in charge of recommending D&O Insurance policy to your company, it is a priority to know about the actual tenure of the insurance policy. The document of the insurance has the relevant details that you need to go through.
It is hugely important to be aware of the exact time bracket of the Discovery period, applicable after the expiry of the D&O Insurance policy.
When is the Discovery period more relevant?
You must know as a business owner or senior executive when the Discovery period of the insurance policy is more relevant. It is usually important in cases when the insured director/officer has failed to renew their insurance policy before the renewal or failed to report a claim that has happened during the tenure of the policy.
Know the limits of expenses when Discovery period is applicable
You should also take note of the legal expenses the insurance can cover when the insured entity requests support during the Discovery period of the D&O Policy. The information will be in the policy document.
The risk scenarios related to D&O
Every business that plans to buy D&O Insurance should know about the wide range of risk scenarios related to the applicability of the policy. The relevance of the Discovery period also does matter with the applicability of terms and conditions of the insurance policy.
- Employment/recruitment practices
- Different administrative and technical issues related to the Department of Human Resources
- Errors in reporting
- Inaccurate disclosure of details, for example data related to company accounts
- Inadequate disclosure of details
- Misrepresentation of facts in a company prospectus
- Misrepresentation of facts on the official website of the company
- Decisions taken and implemented beyond the authority of the concerned Director/officer
- Failure in establishing compliance with regulations/laws
- Failure in maintaining compliance with regulations/laws
- Cases of corporate manslaughter
- Cases if insolvencies
- Specific creditor claims
- Issues related to mergers and acquisitions
- Matters related to divestitures
- Claims from the competitors
The typical exclusions from the D&O Insurance Policy
It is equally important to know about the particular exclusions from the framework of standard D&O Insurance Policies. These are cases/situations/events when the legal expenses for support can’t be requested by the insured from the insurance provider. Go through the following details to know about the specific exclusions.
- In cases of fraud in any department at any scale
- Non-compliant acts that are intentional
- Granting of remuneration/facilities beyond the legal boundaries
- Issues related to property damage
- Issues related to bodily harm
- Claims related to previous insurance policy
- Claims that are covered by any other insurance provider
- Matters related to fines of any category
- Issues related to penalties
Take your time to read the policy document
You must patiently go through the pages of the insurance policy document before you purchase it or recommend it to your company. There are usually several clauses, including a series of terms and conditions. Ask questions to the insurance provider when you have confusion or doubts about certain features or terms of the insurance policy.