{"id":15,"date":"2019-04-19T09:54:53","date_gmt":"2019-04-19T04:24:53","guid":{"rendered":"https:\/\/www.plancover.com\/insurance\/?p=15"},"modified":"2021-07-07T18:58:55","modified_gmt":"2021-07-07T13:28:55","slug":"why-your-business-needs-the-directors-officers-insurance","status":"publish","type":"post","link":"https:\/\/www.plancover.com\/insurance\/why-your-business-needs-the-directors-officers-insurance\/","title":{"rendered":"Why Your Business Needs the Directors &#038; Officers Insurance"},"content":{"rendered":"\r\n<p><span style=\"font-size: 14pt;\">In 2016, an ousted director of a corporate company brought about a retaliatory <a href=\"https:\/\/timesofindia.indiatimes.com\/business\/india-business\/Tata-row-may-trigger-insurance-claim\/articleshow\/55147208.cms\">lawsuit<\/a> against the other board members. \u00a0However, the company had a D&amp;O (Directors and Officers) cover to protect its board members. The 2018 #metoo movement in India <a href=\"https:\/\/www.dnaindia.com\/personal-finance\/report-firms-can-insure-against-allegations-2677714\">triggered<\/a> many companies to purchase and protect their directors against legal actions. Although not compulsory, having the Directors &amp; Officers Liability Insurance ensures that companies are not adversely affected.<\/span><\/p>\r\n<p><span style=\"font-size: 14pt;\">\r\n\r\n<\/span><\/p>\r\n<p><span style=\"font-size: 14pt;\">If you aren\u2019t aware of the D&amp;O Insurance and wondering if you should get one for your business, this article will tell you a lot about D&amp;O Insurance basics and help answer a lot of your questions.<\/span><\/p>\r\n\r\n\r\n\r\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_66_1 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a0f04ca7c53f\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a0f04ca7c53f\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.plancover.com\/insurance\/why-your-business-needs-the-directors-officers-insurance\/#What_is_D_O_Liability_Insurance_Policy\" title=\"What is D&amp;O Liability Insurance Policy?\">What is D&amp;O Liability Insurance Policy?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.plancover.com\/insurance\/why-your-business-needs-the-directors-officers-insurance\/#Why_and_how_are_directors_liable\" title=\"Why and how are directors liable?\">Why and how are directors liable?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.plancover.com\/insurance\/why-your-business-needs-the-directors-officers-insurance\/#What_are_the_risks_covered_by_the_Directors_Officers_Insurance\" title=\"What are the risks covered by the Directors &amp; Officers Insurance?\">What are the risks covered by the Directors &amp; Officers Insurance?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.plancover.com\/insurance\/why-your-business-needs-the-directors-officers-insurance\/#Why_should_a_business_have_a_D_O_policy\" title=\"Why should a business have a D&amp;O policy?\">Why should a business have a D&amp;O policy?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.plancover.com\/insurance\/why-your-business-needs-the-directors-officers-insurance\/#What_are_the_types_of_losses_that_D_O_insurance_covers\" title=\"What are the types of losses that D&amp;O insurance covers?\">What are the types of losses that D&amp;O insurance covers?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.plancover.com\/insurance\/why-your-business-needs-the-directors-officers-insurance\/#What_are_the_claims_that_the_policy_might_not_cover\" title=\"What are the claims that the policy might not cover?\">What are the claims that the policy might not cover?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.plancover.com\/insurance\/why-your-business-needs-the-directors-officers-insurance\/#Why_do_SMEs_need_D_O_Insurance\" title=\"Why do SMEs need D&amp;O Insurance?\">Why do SMEs need D&amp;O Insurance?<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_D_O_Liability_Insurance_Policy\"><\/span><strong>What is D&amp;O Liability Insurance<\/strong><strong> Policy?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\r\n\r\n\r\n\r\n<p><span style=\"font-size: 14pt;\">It\u2019s a policy specifically designed to protect directors, officers, managers and the decision-making employees of a company in the event of a claim against them. This insurance policy pays for legal defense costs, \u00a0financial losses resulting from lawsuits. The D&amp;O Insurance is not mandatory as per the Companies Act 2013. However, a lot of companies opt for this policy to safeguard their management.<\/span><\/p>\r\n<p><span style=\"font-size: 14pt;\">\r\n\r\n<\/span><\/p>\r\n<p><span style=\"font-size: 14pt;\">Employees, customers, investors, vendors, competitors, or regulatory bodies could take legal actions against directors and decision-making officers for various reasons. Some of the common reasons for lawsuits against directors and officers are:<\/span><\/p>\r\n<p><span style=\"font-size: 14pt;\">\r\n\r\n<\/span><\/p>\r\n<ul>\r\n<li><span style=\"font-size: 14pt;\">Knowingly allowing employee harassment<\/span><\/li>\r\n<li><span style=\"font-size: 14pt;\">Failure to comply with regulations<\/span><\/li>\r\n<li><span style=\"font-size: 14pt;\">Deliberately misleading with wrong information or misstatements<\/span><\/li>\r\n<li><span style=\"font-size: 14pt;\">Discriminatory practices<\/span><\/li>\r\n<li><span style=\"font-size: 14pt;\">Errors in managerial conduct or breach of duty<\/span><\/li>\r\n<li><span style=\"font-size: 14pt;\">Negligence, default<\/span><\/li>\r\n<li><span style=\"font-size: 14pt;\">Breach of trust<\/span><\/li>\r\n<\/ul>\r\n<p><span style=\"font-size: 14pt;\">\r\n\r\n<\/span><\/p>\r\n<p><span style=\"font-size: 14pt;\">Lawsuits, claims and settlement amounts can be extremely high and could add up to huge losses for the business. The D&amp;O insurance can shoulder such losses.<\/span><\/p>\r\n\r\n\r\n\r\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Why_and_how_are_directors_liable\"><\/span><strong>Why and how are directors liable?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\r\n\r\n\r\n\r\n<p><span style=\"font-size: 14pt;\">In order to understand this insurance, it is important to first understand the personal liability of the directors and officers connected to the company. A company can have limited liability, but that\u2019s not the case with its directors. Directors and officers have several liabilities. It is a directors liability to pay for losses incurred by the company in case of negligence, misconduct, and breach.<\/span><\/p>\r\n<p><span style=\"font-size: 14pt;\">\r\n\r\n<\/span><\/p>\r\n<p><span style=\"font-size: 14pt;\">They are bound by duty towards all stakeholders \u2013 employees, customers, competitors, government, regulatory bodies, investors and shareholders. Any violation or misconduct can end up in a lawsuit against them. At times, even with care and caution, things can go wrong. What happens then? A D&amp;O Liability Insurance policy can provide relief to them.<\/span><\/p>\r\n\r\n\r\n\r\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_the_risks_covered_by_the_Directors_Officers_Insurance\"><\/span><strong>What are the risks covered by the Directors &amp; Officers Insurance?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\r\n\r\n\r\n\r\n<ul>\r\n<li><span style=\"font-size: 14pt;\">Regulatory investigation related issues<\/span><\/li>\r\n<li><span style=\"font-size: 14pt;\">Accounting discrepancies<\/span><\/li>\r\n<li><span style=\"font-size: 14pt;\">Mergers and acquisition related risks<\/span><\/li>\r\n<li><span style=\"font-size: 14pt;\">Liability to claims by shareholder\/stakeholder<\/span><\/li>\r\n<li><span style=\"font-size: 14pt;\">Employment practice damages, such as harassment and discrimination, failed promotion<\/span><\/li>\r\n<li><span style=\"font-size: 14pt;\">Securities claims related to shareholders<\/span><\/li>\r\n<li><span style=\"font-size: 14pt;\">Corporate Governance requirement and compliance<\/span><\/li>\r\n<\/ul>\r\n<p><span style=\"font-size: 14pt;\">\r\n\r\n<\/span><\/p>\r\n<p><span style=\"font-size: 14pt;\">Having a D&amp;O Insurance policy is not compulsory for all businesses. But it is beneficial to a lot of businesses across industries. A number of companies do not purchase a D&amp;O Insurance policy because they have never faced any such issues in the past. Thus, they are <a href=\"https:\/\/timesofindia.indiatimes.com\/business\/india-business\/metoo-cos-get-insurance-against-harassment-charges\/articleshow\/66279382.cms\">unaware<\/a> of such a policy and its benefits and they are under the impression that because they are a small, family-run, unlisted company, their directors and officers are not exposed to such risks. They could be extremely misguided.<\/span><\/p>\r\n\r\n\r\n\r\n<div class=\"wp-block-image\">\r\n<figure class=\"alignleft\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-18\" title=\"Directors &amp; Officers Insurance\" src=\"https:\/\/www.plancover.com\/insurance\/wp-content\/uploads\/2019\/04\/risk-4096581_1920-e1555647514451-300x198.jpg\" alt=\"Directors &amp; Officers Insurance\" width=\"300\" height=\"198\" \/><\/figure>\r\n<\/div>\r\n\r\n\r\n\r\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Why_should_a_business_have_a_D_O_policy\"><\/span><strong>Why should a business have a <\/strong><strong>D&amp;O policy<\/strong><strong>?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\r\n\r\n\r\n\r\n<p><span style=\"font-size: 14pt;\">Another key point to note is that according to the Companies Act 2013, it is not possible for companies to indemnify the losses suffered by the directors if they do not have a D&amp;O policy. This makes it critical for companies to have D&amp;O insurance.<\/span><\/p>\r\n<p><span style=\"font-size: 14pt;\">\r\n\r\n<\/span><\/p>\r\n<p><span style=\"font-size: 14pt;\">It is important to consider all the risks and determine if a company should purchase this policy. Some of the reasons companies should consider purchasing this insurance are listed below:<\/span><\/p>\r\n<p><span style=\"font-size: 14pt;\">\r\n\r\n<\/span><\/p>\r\n<ul>\r\n<li><span style=\"font-size: 14pt;\"><strong>Increases company credibility: <\/strong>This insurance policy is not a replacement for or guarantee of sound management, but it helps reduce apprehensions of director and officer-level employees that a company might want to bring on board.<\/span><\/li>\r\n<\/ul>\r\n<p><span style=\"font-size: 14pt;\">\r\n\r\n<\/span><\/p>\r\n<ul>\r\n<li><span style=\"font-size: 14pt;\"><strong>Instills confidence in decision-making: <\/strong>This insurance can help directors and owners take important decisions for the business while not having to worry too much about the personal legal ramifications.<\/span><\/li>\r\n<\/ul>\r\n<p><span style=\"font-size: 14pt;\">\r\n\r\n<\/span><\/p>\r\n<ul>\r\n<li><span style=\"font-size: 14pt;\"><strong>Ensures smooth functioning of business: <\/strong>Companies that face charges against directors and managers go through a lot of <a href=\"https:\/\/www.pillsburylaw.com\/en\/news-and-insights\/reality-check-private-companies-need-directors-and-officers.html\">problems<\/a> in the daily business activities, such as, loss of productivity, negative impact to company culture, low morale of teams and employees and company reputation affecting business.<\/span><\/li>\r\n<\/ul>\r\n<p><span style=\"font-size: 14pt;\">\r\n\r\n<\/span><\/p>\r\n<ul>\r\n<li><span style=\"font-size: 14pt;\"><strong>Improves recruitment opportunities for director-level roles and higher retention: <\/strong>Some industries could be more vulnerable to legal risks towards its directors. It is essential for companies to recruit and retain strong leaders, directors and decision makers.<\/span><\/li>\r\n<\/ul>\r\n<p><span style=\"font-size: 14pt;\">\r\n\r\n<\/span><\/p>\r\n<ul>\r\n<li><span style=\"font-size: 14pt;\"><strong>Helps in business expansion and growth in foreign markets: <\/strong>With the increasing need for businesses to grow globally, Indian companies are assessing international markets. This includes new risks, challenges, new rules and regulations, which if not followed to the tee, might leave directors vulnerable. Certain sectors such as IT, knowledge-based sectors, consultancy firms, and outsource-related industries, should definitely have a Directors &amp; Officers Insurance.<\/span><\/li>\r\n<\/ul>\r\n\r\n\r\n\r\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_the_types_of_losses_that_D_O_insurance_covers\"><\/span><strong>What are the types of losses that D&amp;O insurance covers?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\r\n\r\n\r\n\r\n<ul>\r\n<li><span style=\"font-size: 14pt;\">Legal expenses and fees, defense costs, bail bond, and civil bond expenses.<\/span><\/li>\r\n<li><span style=\"font-size: 14pt;\">Damages and Settlement costs<\/span><\/li>\r\n<li><span style=\"font-size: 14pt;\">Public relations expenses that may be incurred in order to reduce or prevent negative publicity.<\/span><\/li>\r\n<li><span style=\"font-size: 14pt;\">Costs for having a legal advisor<\/span><\/li>\r\n<\/ul>\r\n\r\n\r\n\r\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_the_claims_that_the_policy_might_not_cover\"><\/span><strong>What are the claims that the policy might not cover?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\r\n\r\n\r\n\r\n<ul>\r\n<li><span style=\"font-size: 14pt;\">Deliberate and intentional wrongdoing<\/span><\/li>\r\n<li><span style=\"font-size: 14pt;\">Criminal fines and penalties<\/span><\/li>\r\n<li><span style=\"font-size: 14pt;\">Dishonest and fraudulent conduct<\/span><\/li>\r\n<li><span style=\"font-size: 14pt;\">Claims relating to personal profits<\/span><\/li>\r\n<li><span style=\"font-size: 14pt;\">Breach of contract<\/span><\/li>\r\n<li><span style=\"font-size: 14pt;\">Defamation and slander claims<\/span><\/li>\r\n<\/ul>\r\n\r\n\r\n\r\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Why_do_SMEs_need_D_O_Insurance\"><\/span><strong>Why do SMEs need D&amp;O Insurance?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\r\n\r\n\r\n\r\n<p><span style=\"font-size: 14pt;\">The environment in which SMEs operate is dynamic and fast moving. Most SMEs require the management to be closely involved with the day-to-day activities and participate in decision-making processes. Moreover, the pace of activities and decision-making could leave businesses exposed to the dangers of making wrong decisions, not following regulations and more.<\/span><\/p>\r\n<p><span style=\"font-size: 14pt;\">\r\n\r\n<\/span><\/p>\r\n<p><span style=\"font-size: 14pt;\">Managers of small businesses are accountable to the company\u2019s stakeholders- customers, vendors, and investors, among others and hence, are at a risk of facing legal actions. They are not insured by other policies that businesses might have, such as Fire Insurance or General Liability Insurance. Apart from that, there could be issues such as sexual harassment, issues related to Human Resource and more, that can be covered by insurance.<\/span><\/p>\r\n<p><span style=\"font-size: 14pt;\">\r\n\r\n<\/span><\/p>\r\n<p><span style=\"font-size: 14pt;\">Since company managers and directors are closely involved with the business in SMEs, they are highly susceptible to lawsuits from different stakeholders. In fact, a company\u2019s managers are not insured by policies such as fire or general liability policy.<\/span><\/p>\r\n<p><span style=\"font-size: 14pt;\">\r\n\r\n<\/span><\/p>\r\n<p><span style=\"font-size: 14pt;\">In such a scenario, an expensive lawsuit could have severe effects on the director\u2019s personal net worth. To protect employees in such a situation, it is important for small and mid-sized enterprises to purchase a D&amp;O policy.<\/span><\/p>\r\n<p><span style=\"font-size: 14pt;\">\r\n\r\n<\/span><\/p>\r\n<p><span style=\"font-size: 14pt;\">As businesses grow, an increasing number of investors are holding directors and managers accountable in order to improve practices. PlanCover, an insurance company specializing in SMEs insurance can help protect your business with the D&amp;O insurance. <\/span><\/p>\r\n<p><span style=\"font-size: 14pt;\">\r\n\r\n<\/span><\/p>\r\n<p><span style=\"font-size: 14pt;\">PlanCover would address your queries and concerns with unbiased solutions that benefit you. Moreover, PlanCover\u2019s approach of transparency at every stage of the policy\u2019s life cycle ensures that you know what\u2019s happening with your policy. For more details visit our <a href=\"http:\/\/www.plancover.com\/\">website<\/a>.<\/span><\/p>\r\n","protected":false},"excerpt":{"rendered":"<p>In 2016, an ousted director of a corporate company brought about a retaliatory lawsuit against the other board members. \u00a0However, the company had a D&amp;O (Directors and Officers) cover to&#8230;<\/p>\n","protected":false},"author":2,"featured_media":16,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"cybocfi_hide_featured_image":"","footnotes":""},"categories":[10],"tags":[],"_links":{"self":[{"href":"https:\/\/www.plancover.com\/insurance\/wp-json\/wp\/v2\/posts\/15"}],"collection":[{"href":"https:\/\/www.plancover.com\/insurance\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.plancover.com\/insurance\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.plancover.com\/insurance\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.plancover.com\/insurance\/wp-json\/wp\/v2\/comments?post=15"}],"version-history":[{"count":12,"href":"https:\/\/www.plancover.com\/insurance\/wp-json\/wp\/v2\/posts\/15\/revisions"}],"predecessor-version":[{"id":910,"href":"https:\/\/www.plancover.com\/insurance\/wp-json\/wp\/v2\/posts\/15\/revisions\/910"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.plancover.com\/insurance\/wp-json\/wp\/v2\/media\/16"}],"wp:attachment":[{"href":"https:\/\/www.plancover.com\/insurance\/wp-json\/wp\/v2\/media?parent=15"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.plancover.com\/insurance\/wp-json\/wp\/v2\/categories?post=15"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.plancover.com\/insurance\/wp-json\/wp\/v2\/tags?post=15"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}