What is Directors’ and Officers’ (D&O) Liability Insurance?
Directors' and Officers' Liability Insurance is a policy that offers coverage against losses if sued as a company or for their jobs as directors or officers of a business. The policy covers legal fees and costs that the organization incurs due to such a suit.
The policy provides an extra level of coverage against all kinds of unpredictable and potentially large liability claims, as well as cover for some losses due to a lawsuit.
Why do you need a Directors' & Officers' Liability Insurance?
A Directors' & Officers' Liability Insurance policy is needed to
Here are the reasons why you will really need the policy:
- It protects you and your business against vulnerabilities.
- In case of discrimination, harassment allegations or any other employment practice violations the business will not face losses.
- Cost of regulatory investigations, defending and settling claims, as well as paying any compensation will be covered.
- You can ensure that you will be complying with corporate governance requirements and other legal statutes.
- It protects against the risks and financial exposures that come with managing a company.
What will a Directors' & Officers' Liability Insurance policy Cover?
When you get a Directors' & Officers' Liability Insurance, your business will be protected in case of....
Your business will be protected in case of legal liability for payment of defense costs, legal fees and expenses, if an employee/client/third-part files a case against you.
In case claims are made against former or retired directors and officers of your company, arising during their tenure, we’ll help cover the costs.
In case you need the help of a public relations consultant to prevent the effects of negative publicity, we’ll help with the cost of that too.
In case you incur claim expenses or representation costs before receiving written consent from us, we’ll give you give retrospective approval for these amounts.
Covers you in case of defense costs and damages arising from employment-related claims such as allegations of wrongful termination, discrimination, and workplace harassment. This coverage is also sometimes called Employment Practice Liability (EPL).
In the unfortunate case that an insured individual is the victim of kidnapping, we will take care of the costs incurred by this situation.
This covers the cost of fees and expenses to a psychiatrist, psychologist or counsellor for the insured individuals to treat stress, anxiety or such similar medical conditions due to a claim or inquiry compelling attendance.
We will cover you and your company in case you are required to pay any fees, costs, charges and legal expenses to a shareholder of the company who is pursuing a claim against you.
In case a subsidiary is no longer a part of your company, we will continue the existing coverage from the date of the buy-out until the expiry of the policy.
This covers any legal and defense costs that may be incurred while defending a claim of any actual or alleged discharge, dispersal, or leaks of pollutants.
If your company acquires or creates a new Subsidiary then they will also be covered under this policy starting from the date of acquisition or creation, subject to certain terms and conditions.
What’s not Covered?
Since we at Digit believe in transparency, here are some cases where you won’t be covered.
Any criminal, fraudulent, dishonest or malicious acts and resulting fines and penalties.
Deliberate acts of violating a contract, law or regulation.
Known wrongful acts that existed prior to policy inception.
Losses due to war, terrorism and nuclear perils.
Any infringement or misappropriation of patents or trade secrets.
Employer's Liability in case of bodily injury or disablement to an employee as a result of performing their jobs.
Employer's Liability in case of bodily injury or disablement to an employee as a result of performing their jobs.
Fines, penalties, and claims for seepage or pollution as well as costs for clean-up, containment, etc.
What Factors Impact the Premium of a Directors' & Officers' Liability Insurance policy?
The payable premium for a Directors' & Officers' Liability Insurance policy depends on numerous factors like:
- Nature and type of business and the industry
- Size and age of the company
- Total number of employees
- Number of managers, directors, and officers working in the company
- Number of shareholders
- Number of assets in the company
- Financial stability
- Liability limit you opt for
- Trading patterns
- Estimated revenue and/or profit
- Details of past claims made
- Location
Which Businesses need a Directors' & Officers' Liability Insurance?
A D&O Liability insurance policy can be used if you feel that your business needs protection from internal or external claims against managers, directors and officers. The policy comes in handy against potentially large liability claims. Listed below are the kind of companies which can avail themselves of Directors’ & Officers’ insurance policy:
Any kind of start-ups be it - IT companies or consulting firms can get themselves the policy.
Companies which have a total of 500 employees can also avail themselves of a D&O insurance policy.
The insurance policy can also be bought by companies that have over 1000 employees on their payroll.
How to choose the right Directors' & Officers' Liability Insurance?
Making sure that the policy has complete coverage needs to be made sure when looking for a Directors' & Officers' insurance policy. You need to look at things like defense costs, settlements, judgments, etc.
It is better to opt for a policy that lets you customize the limit of liability. Customization will enable you to select the correct amount based on the nature and size of the business.
When choosing the right policy, look at the claim settlement process of the insurer. Having a hassle-free claim settlement policy will ensure that your claims are settled with ease.
Another thing which needs to be done is to compare different policies offered by other insurance companies. It will help you to get yourself the policy which offers you proper coverage along with maximum benefits.
While most insurers offer you coverage for any eventuality, look for an insurer which offers additional benefits. It can be in any way like round-the-clock customer assistance, easy-to-use mobile apps, etc.
Common Directors' & Officers' (D&O) Liability Insurance Terms Simplified for You
- Director - A person placed in a managerial position of the organization that also includes other members of the management board.
- Bodily Injury - The term refers to any physical injury, sickness or disease that results in death, humiliation, mental anguish, mental injury, or shock.
- Employment Wrongful Act - Any wrongful act committed by the insured in connection with the employment like wrongful dismissal, denial of natural justice, breach of employment contract, sexual harassment etc.
- Third Party - This refers to any person or entity which is besides the two primarily involved parties in a situation, especially in the case of a dispute.
- Limit of Liability - Limit of liability is the maximum amount for which an insurance company may be liable under a policy.
- Deductible - The amount of money which you are responsible for paying towards an insured loss.
- Property Damage - It refers to physical injury to tangible property that results in loss of use as well as loss of use of tangible property that has not been physically damaged.
- Inquiry - Investigation conducted in relation to activities of the company can be referred to as inquiry.
- Pollutant - Any irritant or contaminant in an insurance policy whether in solid, liquid or gaseous form is known as a pollutant.
FAQs about D&O Insurance Liability Policy in India
Is it necessary for small businesses to get a D&O insurance Liability policy?
It is better to get a D&O Liability insurance policy irrespective of the size of the business, as disgruntled individuals and shareholders can file lawsuits. With companies serving people from different domains, it is preferable to have the policy to fall back on in case of any eventuality.
What should I consider before buying a Directors and Officers insurance policy?
Before buying a D&O Liability insurance policy, what should be considered varies depending on the needs of the organization. However, one important thing which needs your consideration is whether the policy covers different sides of your company, i.e., managers and the company as a whole.
Is D&O Liability insurance the same as professional liability insurance?
No, the Directors’ and Officers’ Liability insurance policy is not the same as professional liability insurance. Unlike a professional liability insurance policy, it does not protect a business that offers professional services. It comes into play only when directors and officers of the organization are named in the litigation.
Is there a definitive answer as to how much premium is payable for buying a Directors’ and Officers’ Liability insurance policy?
There is no definitive answer to that, as the premium will vary depending on the coverage you opt for. It also considers other factors like needs and risks associated with it.
Does the D&O Liability policy cover punitive damages for board members of the organization?
While the policy covers the board members, it does not cover punitive damages handed out to them. The D&O Liability insurance policy covers only penalties and fines, insurable by law.