Claims can come from many sources, employees, regulators, shareholders, creditors, customers, etc. Ever-changing regulations, increased employee awareness of employment rights and the rise of shareholder activism means directors are more frequently at risk, translating to rising claims and escalating settlement cost.

D&O Fills The Cover Gap

Unlike liability policies that provide cover for claims arising from property damage and bodily injury, a D&O policy specifically provides cover for a "wrongful act," such as an actual or alleged error, omission, misleading statement, neglect or breach of duty.

A D&O policy provides defence costs and indemnity cover to the entity listed on the policy declarations, which may include:

  • cover for individual directors and officers;
  • reimbursement to the organisation for a contractual obligation to indemnify directors and officers that serve on the board; and
  • protection for the organisation or entity itself.

Indemnification provisions are typically included in the charter/bylaws of a company. While an important risk component, small to medium-sized enterprises or not-for-profit organisations often do not have the financial resources to fund the indemnity provisions, making the bylaws hollow. A D&O policy can provide an extra blanket of security in the event of a covered loss.

A "fraud" exclusion is typically included in a D&O policy, which eliminates cover for losses due to dishonest or fraudulent acts or omission, or wilful violations of any statute, rule or law. D&O cover can be tailored to your needs, but be aware that D&O insurers are not consistent with their policy forms. This fact, plus the complexity of D&O claims, requires the insurer to have market commitment and deep expertise, as well as the financial resources to handle potential claims.

There are also additional forms of cover to adequately protect directors and officers, including:

  • entity cover;
  • payment priority for insured persons;
  • severability of the insured as well as severability of the application;
  • cover over time, meaning cover responds to past, present and future directors and officers;
  • pay on behalf clause; and
  • duty to defend clause

Whether you're a not-for-profit, privately held or a public company, it is likely that your business can benefit from a D&O policy. Since there is no such thing as a "standard" policy, a professional broker is invaluable when purchasing D&O cover. We understand your organisation and can knowledgeably help design policy language to meet your needs.

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