{"id":676,"date":"2020-11-30T11:46:57","date_gmt":"2020-11-30T06:16:57","guid":{"rendered":"https:\/\/www.plancover.com\/insurance\/?p=676"},"modified":"2021-07-07T18:28:30","modified_gmt":"2021-07-07T12:58:30","slug":"directors-and-officers-insurance-policy","status":"publish","type":"post","link":"https:\/\/www.plancover.com\/insurance\/directors-and-officers-insurance-policy\/","title":{"rendered":"Directors And Officers Insurance Policy"},"content":{"rendered":"<p style=\"text-align: center;\"><strong><span style=\"font-size: 14pt;\">Directors And Officers (D&amp;O) Insurance Policy<\/span><\/strong><\/p>\n<p style=\"margin: 0in; margin-bottom: .0001pt; text-align: justify; background: white;\"><span style=\"font-size: 14pt;\">Company in isolation does not make decisions. Board of directors, officers and key managers are empowered to make business decisions in the interest of the company to create and add shareholder value. Irrespective of their business acumen, and skills, their decision sometimes can result in financial losses. The directors and officers who made the decisions can be held personally liable and can be involved in costly litigation.<\/span><span style=\"font-size: 14pt;\">\u00a0<\/span><\/p>\n<p style=\"margin: 0in; margin-bottom: .0001pt; text-align: justify; background: white;\"><span style=\"font-size: 14pt;\">Directors and Officers insurance helps businesses in making decisions and not worrying about any such legal liabilities.<\/span><\/p>\n<p style=\"text-align: left;\"><span style=\"font-size: 14pt;\"><strong>SMEs Misunderstanding of D&amp;O Insurance<\/strong><\/span><\/p>\n<p><span style=\"font-size: 14pt;\">Small and Medium businesses often relate D&amp;O insurance policy with publicly traded, large corporations. The fact that they are privately held and not listed makes them perceive that they are free from any such risk exposures.\u00a0 <strong>Not really!<\/strong><\/span><\/p>\n<ul>\n<li><span style=\"font-size: 14pt;\">Law in India allows claimants to be indemnified for losses from a director\u2019s personal assets.<\/span><\/li>\n<li><span style=\"font-size: 14pt;\">SMEs have relationships with vendors, customers, venture capital funds, or other financial investors and employees. These are all external exposures for which their managers are accountable<\/span><\/li>\n<li><span style=\"font-size: 14pt;\">Directors and Officers of SMEs are also personally and legally liable for a business decision.<\/span><\/li>\n<li><span style=\"font-size: 14pt;\"><a href=\"https:\/\/www.plancover.com\/business\/fire-insurance\" target=\"_blank\" rel=\"noopener noreferrer\">Fire insurance<\/a> or a General Liability policy, which a SME purchase doesn\u2019t respond to any legal liability on their managers.<\/span><\/li>\n<li><span style=\"font-size: 14pt;\">SMEs are also prone to Human resource issues with respective to sexual harassment, wrong termination are<\/span><\/li>\n<li><span style=\"font-size: 14pt;\">Lack of in-house legal team to manage any legal litigation on the company.<\/span><\/li>\n<\/ul>\n<h2><span style=\"font-size: 18pt;\"><strong>What is Directors and Officers Insurance Policy?<\/strong><\/span><\/h2>\n<p><span style=\"font-size: 14pt;\">Directors and Officers (D&amp;O) Insurance provides for financial protection for a manager, in the event of a claim against them, alleging a wrongful act in a managerial or supervisory role in the organization. D&amp;O insurance pays for defense costs and financial losses resulting from this lawsuit.<\/span><\/p>\n<p><span style=\"font-size: 14pt;\"><strong>\u201c<em><u>WRONGFUL\u201d &#8211; &#8211; &#8211;<\/u><\/em><\/strong><\/span><\/p>\n<p><span style=\"font-size: 14pt;\">Generic meaning;<\/span><\/p>\n<ul>\n<li><span style=\"font-size: 14pt;\">Not legal, fair or moral<\/span><\/li>\n<li><span style=\"font-size: 14pt;\">Unwarranted, illegitimate etc.<\/span><\/li>\n<li><span style=\"font-size: 14pt;\">Having no legal claim.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-size: 14pt;\">In the Directors and Officers Insurance context, \u201c<strong><em><u>WRONGFUL\u201d<\/u><\/em><\/strong> means;<\/span><\/p>\n<ul>\n<li><span style=\"font-size: 14pt;\">any actual or alleged misrepresentation, misstatement, misleading statement, error, omission, defamation, negligence, breach of warranty of authority or breach of duty means<\/span><\/li>\n<\/ul>\n<h3><span style=\"font-size: 18pt;\"><strong>Risks covered under D&amp;O insurance?<\/strong><\/span><\/h3>\n<p><span style=\"font-size: 14pt;\">Key exposures that make D&amp;O insurance coverage necessary for the Directors and Officers are the following:<\/span><\/p>\n<ul>\n<li><span style=\"font-size: 14pt;\">Regulatory investigations.<\/span><\/li>\n<li><span style=\"font-size: 14pt;\">Accounting irregularities<\/span><\/li>\n<li><span style=\"font-size: 14pt;\">Exposures relating to mergers and acquisitions<\/span><\/li>\n<li><span style=\"font-size: 14pt;\">Vulnerability to shareholder\/stakeholder claims:<\/span><\/li>\n<li><span style=\"font-size: 14pt;\">Securities claims, those related to shareholder value<\/span><\/li>\n<li><span style=\"font-size: 14pt;\">Employment practice violations:<\/span>\n<ul>\n<li><span style=\"font-size: 14pt;\">Sexual harassment, discrimination allegations and other employment practice violations including wrongful termination and failure to promote, negligent evaluation or unfair discipline, breach of employment contract, discrimination and harassment.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h4><span style=\"font-size: 18pt;\"><strong>What does D&amp;O insurance cover?<\/strong><\/span><\/h4>\n<p><span style=\"font-size: 14pt;\">D&amp;O insurance policy reimburses the financial loss arising as a result of a legal suit on individual directors &amp; officers while discharging their fiduciary duties for the company. \u00a0Broad coverage includes the following:<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-679 \" src=\"https:\/\/www.plancover.com\/insurance\/wp-content\/uploads\/2020\/11\/directors-and-officers-liability-insurance.jpg\" alt=\"directors and officers liability insurance\" width=\"827\" height=\"329\" srcset=\"https:\/\/www.plancover.com\/insurance\/wp-content\/uploads\/2020\/11\/directors-and-officers-liability-insurance.jpg 719w, https:\/\/www.plancover.com\/insurance\/wp-content\/uploads\/2020\/11\/directors-and-officers-liability-insurance-300x119.jpg 300w\" sizes=\"(max-width: 827px) 100vw, 827px\" \/><\/p>\n<p><span style=\"font-size: 14pt;\"><strong>Unique Features:<\/strong><\/span><\/p>\n<ul>\n<li><span style=\"font-size: 14pt;\">D&amp;O insurance policies have retroactive date clause and provide coverage for wrongful acts that occurred any time back to the retroactive date, but not for acts that occurred before that date.<\/span><\/li>\n<li><span style=\"font-size: 14pt;\">D&amp;O policy is issued as a claims-made policy that covers claims that are first made or reported during the policy period. <\/span><\/li>\n<li><span style=\"font-size: 14pt;\">There is also a Discovery period, the period immediately after expiry of the policy period, which is extended under this policy. This period can range depending on the scope of such period required and can be extended up to 12 months, upon payment of additional premium.<\/span><\/li>\n<li><span style=\"font-size: 14pt;\">Retired Directors and officers \u2013 Indemnify retired directors &amp; officers for claims made against directors &amp; officers.<\/span><\/li>\n<\/ul>\n<h5><span style=\"font-size: 18pt;\"><strong>Who can put a claim under D&amp;O insurance?<\/strong><\/span><\/h5>\n<ul>\n<li><span style=\"font-size: 14pt;\">Directors and officers can be personally sued by an external stakeholder (shareholders, creditors, suppliers, customers, competitors or regulators) or by an internal stakeholder (board of directors, employees).<\/span><\/li>\n<li><span style=\"font-size: 14pt;\">Suits can be bought for various reasons. Shareholders might sue for insider trading. Creditors might sue for misrepresenting the financial health of the company. Competitors might sue for unfair trade practices.<\/span><\/li>\n<\/ul>\n<h6><span style=\"font-size: 18pt;\"><strong>Types of losses paid under a D&amp;O insurance policy?<\/strong><\/span><\/h6>\n<ul>\n<li><span style=\"font-size: 14pt;\">Defense costs \u2013 Legal expenses and costs, which the company is legally liable to investigate, defend or appeal a claim. Defense costs also include Bail bond and civil bond expenses.<\/span><\/li>\n<li><span style=\"font-size: 14pt;\">Public Relations expenses \u2013 Costs incurred to retain a public relations consultant to reduce or prevent negative publicity.<\/span><\/li>\n<li><span style=\"font-size: 14pt;\">Extradition costs \u2013 Costs to have a legal adviser or tax consultant towards advice on extradition proceedings.<\/span><\/li>\n<li><span style=\"font-size: 14pt;\">Emergency costs advancement \u2013 In the event of defense costs trigger, the company can also request for payment of defense costs on retrospective basis.<\/span><\/li>\n<\/ul>\n<h6><span style=\"font-size: 18pt;\"><strong>How the limits under D&amp;O insurance work?<\/strong><\/span><\/h6>\n<ul>\n<li><span style=\"font-size: 14pt;\">Coverage will be restricted by policy terms and conditions, and limited within a certain maximum limit of coverage.<\/span><\/li>\n<li><span style=\"font-size: 14pt;\">The limit varies depending on the company\u2019s revenues, business, and exposure type.<\/span><\/li>\n<li><span style=\"font-size: 14pt;\">The policy limit is an \u201cannual aggregate\u201d, meaning that there is only one single limit for all the claims during one policy year.<\/span><\/li>\n<li><span style=\"font-size: 14pt;\">Defense and other costs are part of this single limit.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-size: 14pt;\"><strong>Important exclusions<\/strong><\/span><\/p>\n<ul>\n<li><span style=\"font-size: 14pt;\">Dishonest or Improper conduct \u2013 any willful breach, fraudulent or malicious act, willful violation of obligation, contract or regulation,<\/span><\/li>\n<li><span style=\"font-size: 14pt;\">Knowledge of prior matters and notifications.<\/span><\/li>\n<li><span style=\"font-size: 14pt;\">Legal action already taken prior to policy inception.<\/span><\/li>\n<li><span style=\"font-size: 14pt;\">Bodily injury, sickness, mental anguish or emotional distress, diseases or death of any person and damage to tangible property.<\/span><\/li>\n<li><span style=\"font-size: 14pt;\">Claims made under a previous policy.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-size: 14pt;\"><strong>Regulatory changes have also improved scope for D&amp;O insurance policy. <\/strong><\/span><\/p>\n<ul>\n<li><span style=\"font-size: 14pt;\">The new Companies Act, 2013 in the country comprehensively focuses on fraud risk management.<\/span><\/li>\n<li><span style=\"font-size: 14pt;\">Penalties for directors and officers of a company.<\/span><\/li>\n<li><span style=\"font-size: 14pt;\">Directors can obtain indemnities from the company. Under the erstwhile Companies Act 1956, companies were constrained to provide such indemnification.<\/span><\/li>\n<li><span style=\"font-size: 14pt;\">The act also implicitly recognizes the right of the company to obtain D&amp;O insurance policies by paying premium.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-size: 14pt;\"><strong>Why Us?<\/strong><\/span><\/p>\n<ul>\n<li><span style=\"font-size: 14pt;\">Professional advice and consulting approach.<\/span><\/li>\n<li><span style=\"font-size: 14pt;\">Customise coverage and limits.<\/span><\/li>\n<li><span style=\"font-size: 14pt;\">Access to Top Insurance players.<\/span><\/li>\n<li><span style=\"font-size: 14pt;\">Best premium services.<\/span><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Directors And Officers (D&amp;O) Insurance Policy Company in isolation does not make decisions. Board of directors, officers and key managers are empowered to make business decisions in the interest of&#8230;<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"cybocfi_hide_featured_image":"","footnotes":""},"categories":[37],"tags":[90,93,89,91,92],"_links":{"self":[{"href":"https:\/\/www.plancover.com\/insurance\/wp-json\/wp\/v2\/posts\/676"}],"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=676"}],"version-history":[{"count":6,"href":"https:\/\/www.plancover.com\/insurance\/wp-json\/wp\/v2\/posts\/676\/revisions"}],"predecessor-version":[{"id":683,"href":"https:\/\/www.plancover.com\/insurance\/wp-json\/wp\/v2\/posts\/676\/revisions\/683"}],"wp:attachment":[{"href":"https:\/\/www.plancover.com\/insurance\/wp-json\/wp\/v2\/media?parent=676"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.plancover.com\/insurance\/wp-json\/wp\/v2\/categories?post=676"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.plancover.com\/insurance\/wp-json\/wp\/v2\/tags?post=676"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}