Directors and officers can mitigate the risk of personal liabilities on them through various safeguards. But, the most ideal, and cost-effective mechanism is they obtain the https://www.plancover.com/insurance/top-17-directors-and-officers-do-insurance-faqs-answered/”>“Directors and Officers Liability” insurance. This will help the directors to safeguard themselves in case of any claim arising from any third party due to their bonafide actions in the company.
In order to understand D&O insurance, we must first examine the risk exposures that can create liabilities for directors. Director’s liability can be categorised under two broad areas:
- Liability under the Companies Act of 1956 (The new Companies Act of 2013).
- Liability under other Indian statutes including: offenses under the Income Tax Act of 1961, unpaid sales tax under the Central sales tax act, 1956, may be amended considering the impact of GST, under negotiable instruments act, 1881, violation of foreign exchange regulations, etc.
The risks and potential liabilities facing directors & officers (D&Os) have significantly increased with the increasing complexities involved in all businesses. Today, directors may be held to account for instances of corruption and fraud, competition antitrust, environmental, health and safety, tax and international sanctions matters. Escalating regulatory scrutiny is another risk that D&Os cannot afford to ignore. Cyber related risks and employment practices are new risks that directors and officers face today.
D&O liability insurance affords protection to directors and officers from liability arising from actions connected to their corporate responsibilities. The policy provides cover to the directors and officers in respect of:
- Legal costs in defending proceedings brought against them alleging wrongful acts.
- Any damages awarded to the claimants against the Directors and Officers, including out of court settlements.
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