How Directors And Officers Liability Can Benefit Your Company

As a director of a company you might think that you are resistant to liability, but that is incorrect. While companies are protected, the individuals working in them however are not. They are held responsible for any violation of the companies acts, even if unintentional. This can lead to fines, suspension and even imprisonment.

Why Do You Need D&O Insurance?

No matter how unlikely it might seem, personal claims and accusations against directors or officers can follow from any decision made, on the companies behalf.

Such accusations can range from minor or bitter claims by dissatisfied customers, to official investigations. These claims can include:

• Claims from shareholders who blame directors for their personal losses
• Claims of suspect for wrongful trading or wrong payments
• Police investigation claims where fraud is suspected

Directors and officers (D&O) insurance can be found in two main types; corporate or individual.

• Corporate D&O – applies to multiple and all directors and officers liability.
• Individual D&O – applies to a single individual director and officer’s liability.

The Importance of Personal Protection for All D&O

While the companies definition of director or officer is quite strict, the legal definition is quite broad. It can apply to anyone with the managing position of funds or human resources. So make sure to explain each employee what their position is, their specific tasks and the consequences.

And it is important to consider every layer of management when getting D&O insurance, as mentioned, for all directors and officers liability is the same.

What Period Will D&O Insurance Cover?

The usual runtime of a D&O insurance contract is 12 months. But each company varies and you will find the date of expiration written on the policy document.

There are two main types of contracts:

• Claims made: This means that the insurance company will cover any claims made against the insured personal.
• Claims made and notified: This means that the insured personal will need to notify the insurance company when to take action.

Keep in mind that the director or officer will need insurance coverage even after they have left office (at least 7 years). This is because the former director or officer can still be held accountable for their actions, even if they no longer posses the job.

How This Can Benefit Individual Directors and Officers

D&O insurance companies ensure advice for the insured personal at any moment, or when a potential claim arises. The team of professionals can help the accused to defuse the situation by; minimizing the risks or directing the claims toward the company instead of the individual.

In short, if you do not already have D&O insurance, it is strongly advised as it can save your personal from charges like fines, suspension and even imprisonment.