Do you have adequate D&O insurance?

Directors and Officers (D&O) Insurance is an increasingly important part of corporate risk management and is designed to protect the personal assets of company directors and officers from legal claims.

With greater corporate governance focus in place, company directors and officers (including the company secretary) are under increased pressure to carry out their duties and obligations diligently. Failure to do so may result in personal liability for potential compensation claims, fines, and legal costs for individual directors and/or officersfrom the decisions and actions taken within the scope of their regular duties.

Although major publicly listed companies have the highest risk of attracting D&O claims, most active entities, whether publicly or privately traded, as well as not-for-profit organisations, have potential D&O exposure.

How to reduce the risk and protect yourself

A company needs to ensure that its directors and officers have sufficient scope to make decisions without the threat of personal liability constantly hanging over them.  An effective D&O Insurance supports good corporate governance by making the risks of these decisions manageable and transparent.

D&O Insurance gives a certain degree of financial security when a claim is made by paying for defence costs and providing the company, shareholders and creditors a way to recapture some part of financial losses incurred.

Who is covered?

D&O policies generally cover all current, future and past directors and officers, including non-executive directors, of a company and its subsidiaries.

Common D&O risk scenarios

Be aware, however, that D&O Insurance does not mitigate risk arising from poor or negligent behaviour.

Common D&O exclusions

 

One of the most important decisions that must be made in respect of D&O Insurance is the policy limit. Under some circumstances, directors and officers may be called to pay costs out of their own pocket if the D&O Insurance cover is inadequate.

To ensure sufficient protection, some common questions to ask when investigating adequate D&O Insurance for your company are:

 

Disclaimer: this blog does not represent legal advice. We recommend that you consult with your insurance company and legal advisers to ensure adequate insurance coverage is sought, as D&O policy costs depend on the size of your company and a variety of other risk factors.

 

Please feel free to contact us via our contact page if you have any questions, comments or insights.