Also, Directors’ & Officers’ liability insurance safeguards the personal liability of directors and officers. These liabilities may arise if the directors and officers do any wrongful act in their managerial capacity.
Key Takeaways
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Broad Definition of Insured Persons: D&O policies protect a wide spectrum of corporate personnel beyond board members, including company secretaries, risk managers, team leads, in-house counsel, and subsidiary officers.
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Coverage Across Temporal Limits: Protection extends to past, present, and future directors and officers, safeguarding individuals against claims filed even after leaving the company.
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Inclusion of De-Facto & Committee Directors: Individuals exercising managerial authority without formal titles (de-facto directors) and members of internal audit or compensation committees are explicitly covered.
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Funding Multi-Tiered Legal Appeals: As shown in commercial disputes (e.g., confidentiality breach allegations), D&O insurance pays ongoing legal fees across lower and appellate courts to fully clear an executive’s name.
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Prospective IPO & Prospectus Coverage: Individuals named as prospective board members in public offering documents receive protection against pre-listing disclosure liabilities.
Who is covered under a Directors & Officers policy
The policy covers a large number of people in a company, including:
- Directors and Officers employed by the organization
- Directors and Officers of subsidiary companies
- Non-executive or independent directors
- Risk managers
- Managers or supervisors
- An employee acting as a lawyer on behalf of the company for any employment or security claim
- Company Secretaries
- And other important executives. Generally, most employees handling a team are considered.
Under a D&O policy, directors or officers imply:
- A past, present, or future director, officer, management committee member, supervisory board member, management board member, or governor of the company duly elected as per the law
- A person who is a past, present, or future de facto director or officer of the company
- Past, present, or future corporate general counsel (or equivalent position) of the company
- Any director or officer, as defined above, who is the past, present, or future member of the company’s internal audit committee, internal compensation committee, or any other internal committee of the company
- A prospective director in the listing or prospectus for a public offering issued by the company
- Also, Important executives who may not be on the board
Case Study
A marine and transport company inked an agreement with an oil company to provide services to the latter. However, it was later alleged that one of the directors of the marine insurance company had breached the confidentiality provisions of the contract. He had shared sensitive information about the oil company with its competitor. Consequently, the oil company revoked the agreement and initiated significant legal action against the director of the marine company. The company alleged a breach of contract. Additionally, it considered the director’s act wrongful due to which the company faced financial loss. However, the director of the marine company denied any wrongdoing. As the company had a D&O insurance policy, it approached its insurance company for coverage.
Subsequently, the insurer provided the coverage on the basis of the allegation filed against the “insured person.” Although the court upheld the oil company’s claims at first, it cleared the director of all the allegations when the marine company approached the higher court. Eventually, the D&O insurance company covered all the legal costs incurred by the marine company in defending its director in court. Without this insurance, the director or the company would have had to pay Rs 40 lakhs of legal costs.
Summary Table: Scope of Insured Persons and Governance Roles under D&O Policies
Additional Read: What is covered under a directors and officers Liability Insurance Policy?
Role of SecureNow
So, to have a smooth settlement of your D&O liability insurance policy, you must choose the right insurer. SecureNow can help you think through the best covers for your D&O and also give a detailed comparison of different insurance companies offering D&O liability insurance coverage.
Frequently Asked Questions (FAQs)
1. Who qualifies as an “insured person” under a Directors and Officers (D&O) liability policy?
A) An insured person under a D&O policy includes past, present, and future directors, executive officers, company secretaries, general counsel, risk managers, subsidiary board members, de facto directors, and managerial employees who supervise teams or make operational decisions.
2. Does a D&O policy cover non-executive and independent directors?
A) Yes. Independent and non-executive directors are covered under D&O policies. Because independent directors face personal asset exposure from board oversight decisions without managing daily operations, D&O insurance is often a strict prerequisite for them to accept board appointments.
3. Are internal committee members protected under a company’s D&O policy?
A) Yes. D&O liability policies cover past, present, and future members of internal corporate governance committees, such as the audit committee, compensation committee, risk management committee, and nomination committee, against claims alleging oversight failure or governance breach.
4. How does D&O insurance protect executives in commercial confidentiality or contract disputes?
A) If an executive or director is sued by a third party for allegedly breaching confidentiality provisions or causing financial losses, the D&O policy advances legal defense fees, attorney retainers, and court costs. The policy pays for the defense through all judicial levels, including appeals, until a final judgment is rendered.
5. Are prospective directors listed in an IPO prospectus covered by D&O insurance?
A) Yes. Broad D&O policies include prospective directors named in public offering prospectuses or stock listing filings. This protects incoming leadership from misrepresentation or disclosure claims brought by investors following a public capital raise.
About The Author
Rajesh
MBA Finance
With a wealth of expertise in the insurance realm, Rajesh is a distinguished writer specializing in articles focusing on directors and officers insurance for SecureNow. Boasting 9 years of experience in the industry, he profoundly understands the complexities surrounding directors and officers liability coverage. Their articles delve into the intricacies of D&O insurance, providing readers with invaluable insights into risk mitigation strategies and policy considerations. Renowned for their comprehensive knowledge and attention to detail, Rajesh is dedicated to delivering informative and engaging content that empowers individuals and businesses to navigate the complexities of insurance with confidence.
