Directors and officers liability insurance (also known as D&O insurance) covers you, your company and its assets against liability claims in relation to corporate activities. Companies, their directors and officers can all be charged with penalties for an ever-increasing number of actions and legal issues. To cover all relevant parties and financial risks, you need to choose the best policy that protects the employees of your business.
Situations where directors and officers liability insurance can be useful
- Harassment, discrimination, defamation, wrongful discipline, breach of employment terms and misleading representation of terms to or by employees within or outside the company
- Directors and officers of government agencies that are personally liable for damages by the company to a client, employee or customer
- Misconduct or misleading acts towards competitors in accordance with the Trade Practices Act
- Mismanagement of funds and/or shares that lead to damages or losses for shareholders or stakeholders
What does directors and officers insurance cover?
- Protects individual directors and officers from action against them that arises from negligent decisions or actions
- Can include personal asset protection of directors and officers
What is excluded from a directors and officers liability insurance policy?
- Generally doesn’t cover losses that can be covered by other types of insurance. For example, professional services provided by an organisation typically are not covered by D&O insurance as professional indemnity insurance is designed for this purpose.
- Criminal or fraudulent conduct. Insurers are prohibited from covering criminal or fraudulent conduct as to not undermine the law. As such, illegal or dishonest acts by any individual that results in profit or renumeration (e.g. insider trading, embezzlement) are excluded from D&O policies.
- Known claims and circumstances. D&O insurance is designed to protect policyholders against unforeseen risks – therefore, coverage does not include known claims or circumstances that occur.
- Prior or pending litigation exclusions. Prior or pending litigation exclusions are designed to void coverage for claims that have commenced before the prior or pending litigation date. This date is specified in the policy schedule and usually represents the initiation date of the D&O coverage.
- Catastrophic hazards. D&O policies, alongside many other insurance classes, will often exclude losses or include clauses for losses that are deemed ‘catastrophic hazards’ to an insurer – where they could not realistically cover the cost of payouts without destroying their own financial position. Examples of catastrophic hazards include war, terrorism and instances of catastrophic environmental damage.
- ‘Insured vs insured’. D&O insurance generally excludes claims brought against directors and officers by others insured under the same policy.
- Major shareholder exclusion. Working to a similar function as insured vs insured exclusions, major shareholder exclusions can be made for claims by an individual who owns a major percentage of a company – typically 10-15% and upwards.
- Specific exclusions specified by the insurance broker. Insurers can outline specific risks or circumstances they are not willing to provide coverage for if identified and accepted during the underwriting process. These particular exclusions are applied on a case-by-case basis.
At Sydney Insurance Brokers, we take care of all your directors and officers insurance needs. Our experienced professionals ensure you get a policy that is best for you and your business. Contact us to discuss your requirements today.