As an entrepreneur, director, senior executive or HR head of a company, especially a small business in India, it is your right to know about when Indian companies need directors and officers insurance. The short form of the policy is known as D&O.
The goal of the policy
The insurance policy has the goal to meet the financial liabilities of the companies, in context of legal expenses. When the directors/officers of the company have to fight a lawsuit hiring a lawyer, the insurance covers the costs. The company does not have to bother about it.
Type of Indian company that can get the insurance
You might be thinking about the type of Indian company that can purchase the policy. It can be a private company or public organization. The insurance is available even for NGOs. Nowadays, there are many start-ups in India. A registered start-up can also purchase a D&O insurance policy.
When the company is accused of HR malpractice
When an employee accuses the company of HR malpractice and files a lawsuit, the insurance has a role to play. It covers the legal costs on behalf of the company.
When a shareholder files a case
A shareholder of the company can be disgruntled with its management and overall performance. He can file a lawsuit against the directors/officers. In such cases, the company has to hire an attorney. The costs of hiring the expert are taken care of by the insurance money.
Getting accused due to alleged reporting errors
An individual can also file a lawsuit against the directors/officers of the company, accusing them of misconduct or inefficiency while reporting certain errors, related to the growth of the company. In such cases, too, the insurer pays the legal costs.
Allegation of inadequate disclosure
The company and/or its directors/officers might suffer from the allegation of inadequate disclosure, especially related to data in the company accounts. Hiring an experienced lawyer to fight the case is the wisest step to take. The insurer takes note of the situation and pays the legal expenses.
Failure in compliance
Running a company or NGO means complying with a set of rules and regulations. A person or group can think that the company has failed to comply with the regulations, filing a lawsuit. The insurance money comes to the rescue of the directors/officers in such cases, too.
In alleged cases of corporate manslaughter
When an employee is sacked or terminated from the service bench of a company, the individual can file a lawsuit against the company, citing corporate manslaughter. This is yet another case when the directors/officers do not have to bear the legal expenses. The D&O insurance policy takes care of the matter.
In alleged cases of misrepresentation of information
A shareholder, an employee or even a third party can file a lawsuit against the directors/officers of the company, alleging them of misrepresenting a piece or multiple pieces of corporate information. Again, the company can rely on the insurance policy.
When a company is bankrupt, it means it is insolvent. The company does not remain in a position to carry on operating and non-operating expenses of any kind, including the costs of fighting a lawsuit or covering settlements. The D&O insurance policy helps the company in these situations.
Claims from the competitor
A competitor of the company can demand claims, alleging copyright infringement or violation of patent laws. In most of the cases, it files a lawsuit. Hiring a copyright lawyer is inevitable to fight the lawsuit. The support from D&O insurance is crucial here.
How to purchase the insurance?
When you have the duty to assess the features of the insurance and recommend the policy to your corporate house or company, it is crucial to ensure a top-rated insurance broker. You need to buy the policy from a well-known service provider in the insurance sector.
Reading the insurance policy document is crucial
You can’t afford to overlook the details mentioned in the policy document, discussing the applicability of the insurance. Take your time to go through the salient features of the insurance and get clear ideas about it.
Know about the situations when the insurance is applicable
You have to thoroughly be aware of the situations when the D&O insurance you plan to buy is applicable. The policy document will have the necessary information on this matter. There are multiple cases, as already explained in this blog, where the insurance plays a major role.
Focus on the needs of the company
It should be a priority to concentrate on the specific requirements of the company when you think of availing the policy from a service provider. A company can have a single objective or equally important simultaneous objectives. The company needs to consider such things while purchasing the policy.
The policy is about corporate risk management
There is no trace of doubt in the fact that the D&O insurance policy is mainly about handling corporate risk and managing it, within the regulatory framework of the company, as efficiently as possible.
Do not miss any section of the policy
As an executive shouldering the responsibility to do research about the policy, you should not miss any of its sections. Each section of the insurance policy document has separate significance. You need to be very meticulous in understanding the various aspects of the policy.
Ask relevant questions to the insurer
It is essential to ask relevant questions to the insurer to know more about the D&O insurance policy. There should not be any confusion while purchasing the policy from a broker or service provider. Clear responses from the seller will give you confident to rely on the policy.
Choose a renowned insurance broker
The intelligent measure a small business can take is choosing a reputable insurance broker like PlanCover that has ample expertise and experience in selling D&O insurance policies to multiple businesses across India. It provides extensive details about different aspects of the insurance policy to the buyer, explaining the long-term benefits.