PART-I

Directors and Officers Liability Insurance (often called D&O) is liability insurance payable to the directors and officers of a company, or to the organization(s) itself, to cover damages or defense costs in the event they suffer such losses as a result of a lawsuit for alleged wrongful acts while acting in their capacity as directors and officers for the organization. Such coverage can extend to defense costs arising out of criminal and regulatory investigations/trials as well; in fact, often civil and criminal actions are brought against directors/officers simultaneously. It has become closely associated with broader management liability insurance, which covers liabilities of the corporation as well as the personal liabilities for the directors and officers of the corporation.

Need for D&O Policy

Directors and Officers can be sued personally by any stakeholder for a decision taken by them on behalf of the Company in their managerial capacity

Potential Claimants:

• Shareholders
•  Direct and Class actions: on their own behalf
  
•  Employees: for labor related issues such as:
•  Sexual Harassment
  
•  Wrongful Termination / Promotion
  
• Discrimination
•  Failure to promote
  
• Breach of employment contract
•  Third Parties Competitors (Interference, etc.)
•  Customers
  
• Government (banking law violations, civil rights issues, etc.)
  
• Creditors
  

Sources of D&O liability

• Shareholders 55%
•  Employees 23%
•  Regulators 3%
  
• Customers 5%
  
• Competitors 6%
  
• Miscellaneous Third Parties 6%
  

D&Os could be held liable for..

Actual or alleged:

• Misuse of corporate funds
•  Companies Act violations
  
• False statements to Government agencies
•  Irregularities in securities issues
  
•  Breach of duty to minority shareholders
  
• Misuse of inside information for personal gains
•  Imprudent expansion leading to erosion of shareholder wealth
•  Bankruptcy
  
• Management integrity issues
  
• Employment irregularities/harassment
  
•  Auditing and Accounting practices
•  Mergers & Acquisitions
•  Violation of legal statutes
•  Listing of stock or debt on a stock exchange

 How to protect individuals

• Indemnification from the company - Not always clear as to legal situation and whether permissible
  
• Good corporate governance
  
• Strong internal controls Risk transfer - Insurance
  

To understand the nuances of different types of policies and its price, feel free to seek the help of InsuranceMall to select the right products based on your need. Or you can directly call them on +91-22-30503050

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