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D&O Insurance 101 – A Guide to Directors and Officers Insurance

February 2, 2017

D&O Insurance

Brief History of D&O Insurance:

First written by Lloyd’s of London in the 1930s, Directors & Officers Liability (D&O) Insurance was first established following the Wall Street crash in 1929 and the introduction of U.S securities laws in ’33 and ’34.

Up until the 1960s, D&O remained a relatively niche class of insurance, before new interpretations of corporate law in the U.S began to hold directors and officers more easily liable for the results of their actions, and D&O entered the mainstream U.S insurance scene in the ‘70s. D&O Liability Insurance didn’t enter the mainstream Australian insurance market until the 1980s.

More recently, nearly all publicly traded companies began investing in some degree of D&O Insurance cover in Australia, and it is becoming increasingly popular/valuable to smaller companies and organisations.

Nowadays, Management Liability Insurance (ML) has generally taken over D&O Insurance in Australia, as MI Insurance covers D&O, as well as many other liabilities of management.

How does D&O Insurance work?

D&O Insurance covers company managers against liability claims that may arise from actual or alleged claims of wrongdoing on their behalf, which occurred during the scope of their management duties.

Policies are designed to protect personal liability of a companies directors and officers, as well as reimbursing the insured company in case it has indemnified its managers in order to protect them.

Publicly traded companies can also obtain coverage for claims against the company itself in regards to wrongful acts that affect to the trading of its stocks.

D&O liability claims typically originate from shareholders, customers, creditors, regulators (civil and criminal charges), competitors (i.e. allegations of unfair trade practices) and employees.

D&O policies will generally cover:

  • Costs incurred defending a claim
  • Financial losses sustained by the covered individuals
  • Financial losses sustained by the covered company
  • Costs generated by administrative and criminal proceedings in the course of claim investigations

D&O policies will generally exclude:

A D&O policy does not cover a officer or directors fraudulent, criminal or deliberately unjust actions. Though an innocent director will remain fully covered if the acts of their colleagues were intentional or fraudulent without their knowledge – D&O will not cover cases where an officer or director of a company acted for personal profit or gained illegal remuneration.

As you can see, due to the complexity of D&O Insurance and the basis upon which it is issued, careful consideration of various exposures from a experienced Insurance Broker is required to ensure a broad protection is provided.

For further information or enquiries on D&O or Management Liability Insurance, contact the professionals at Sydney Insurance Brokers today.