D&O coverage protects directors and Officers against personal responsibility resulting from inappropriate activities performed in their capacity as a manager. Defense expenditures are those expenses that a company must pay before a final judgement are covered. This policy protects senior executives and company directors from personal losses. Unless this policy is taken, there is every chance that senior officers and directors’ assets will be kept on hold during the course of a trial.
It has become essential to get directors And Officers liability insurance in India in today’s times. Looking at the nature of establishments and a globally uncertain economic condition, organizations cannot always be safe from lawsuits. Although the most common types of general insurance policies seen in India are health, automobile, and life, this is right up there for senior management.
The Procedure to Obtain D&O Liability Insurance
In actual life, D&O insurance is bought through a relatively straightforward procedure. It begins when managers fail to fulfil their responsibilities. Typical risk situations are likely to be regulatory infractions, inaccurate disclosures, reporting errors, and insolvencies. To get the claim, a description of the error is forwarded to the broker/insurer after the senior officers and directors get to know about the problem.
What if the Case is Lost?
If the D&O insurance company loses the case, then all financial and defense costs are reimbursed. However, the final claim is determined by the fine print within the specific policy. Losing the case means that the claim has been rejected. This decision should become an eye-opener for businesses having D&O policies to not rely solely on the policy for rescue each time. Instead, diligence done ahead of time will be helpful and will ensure D&O claims are rejected as little as possible.
It is also important to remember that the best insurance companies have highly experienced agents who know their fields well. As an essential precaution, businesses must be mindful of what information is being shared.
Who All Can Claim D&O?
D&O liability insurance is highly beneficial for the following entities:
- Customers– These days, marketing campaigns know no limitations, and there’s always the possibility of falling to new lows while pushing a product. If other agencies, such as non-governmental organizations (NGOs) or even customers, condemn corporations, the director may face difficulties. As a result, protection from unfair business practices and deceptive advertising is in high demand.
- Shareholders– If the conduct of one or more members of the Company Board of Directors results in a drop in share prices and significant shareholder losses, D&O can prevent the occurrence of a lawsuit against the Company and its directors.
- Regulatory Authorities– If a company fails to pay its taxes, a regulatory authority may hold its directors liable. The director will be secure if no information has been forcefully withheld or illegal actions have been undertaken.
- Employees– directors and Officers liability insurance is also applicable when employees sue their employers for difficult situations like discrimination, wrongful termination, and sexual harassment.
Apart from the above, it also acts as a cover in the following crises:
- Regulatory Crisis Response Coverage: It is common to see several regulatory claims where the Directors and Officers are being investigated. The senior officer or director must get a lawyer to prevent any untoward happenings. Getting an auditor or certified account would also help put forward the case. Fees charged by these professionals are as per Regulatory Crisis response coverage norms.
- Lifetime Coverage for Retired directors– This is useful for both resigned and retired directors, safeguarding them against actions carried out when they were employed.
More Insurance Covers
Insurance companies can add a couple of more covers to the existing D&O policy for a company. The following covers are available as insurance extensions:
- Tax Liability Extension– This is in place to cover tax liabilities of individual directors and senior officers, but it does not cover liabilities of the company. Therefore, any unpaid dues from creditors because of financial constraints cannot be covered.
- Entity EPLI Cover-This differs from the above in one way- it covers tax liabilities of the company, thereby securing it against legal action.
Some of the salient points to keep in mind while getting D&O liability insurance are as follows:
- When all factors are equal, businesses with a strong financial position and a long operating history will pay less for D&O than debt-laden younger businesses
- Legal defence fees and other losses are covered here
- The policy gives protection even when the employer refuses to indemnify or does not have the funds to do so.
- As already mentioned above, D&O liability insurance covers senior officers and directors of businesses
- Companies can expect D&O liability coverage to take into account defence costs, court judgments, and legal representation costs.
- Coverage is available for the corporate entity as “entity coverage”
- There is another type of coverage in which the firm indemnifies directors and officers for their losses
Hi, I am Adam Smith, Admin Of TechSketcher, Creative blogger and Digital Marketer.