Directors’ and Officer’s Liability Insurance

Directors and officers are agents of the company and therefore when they act, they act on behalf of the company. They are trustees of the company assets which they control and stand in a fiduciary position in relation to the company.

 In many of the developed countries, directors and officers, directors and officers are coming under increasingly scrutiny from shareholders, creditors, customers, employees and others and the routinely being sued for wrongful acts or omissions in their individual capacity as directors. Such are acts which involve breach of trust, neglect, breach of warranty of authority or misstatement of facts.

Other examples on such as include;

• Unfair dismissal of employees
• Failure to supervise the affairs of the company properly
• Being sued by the government supervisory authorities for breach of legal provisions.
• Action by creditors for wrongful statement of the financial position
• Action by the shareholders for imprudent financial decisions such as rapid expansion through borrowing
• Being liable for making wrongful unauthorized payments
• Breach of contract
• Breach of common law duties – personal acts of negligence

Directors and officers may be personally sued for breach of such duty in situations where they cannot be indemnified by the company. This policy aims at protecting the directors and officers of a company against their personal liability for financial losses out of such acts or omissions. It can also give indemnity to the company regarding the costs it incurs in indemnifying the directors or officers against a successful defense of a claim.

Accordingly, the policy pays for;

• Damages and costs awarded against directors and officers
• Cost and expenses incurred with the written consent of underwriters of defense or settlement of the claim.

The policy is generally issued on ‘claim made basis’ which means the policy covers all claims notified to the insurer or the insured during the period of insurance, no matter when the event giving rise to the loss occurred. It covers past, present, and future directors. In common, with other with other liability policies, the directors and officer’s policy also indemnifies any damages and defense costs in relation to claims.

Insurers allow an extension regarding the time limit in which discovery must be made, for example, a director may leave the company but still have ongoing responsibility for incidents reported in future.

Policy Exclusions

• Claims for which the legal action was filed outside the jurisdiction
• Claims for bodily injury or property damage
• Dishonesty, fraudulent or malicious conduct of a director or officer.
• Claims based upon illegal or improper personal gain
• Breaches of professional duty
• Fines, penalties and punitive damages
• Gradual pollution and contamination.