Directors of a company are in quite an onerous position as far as their duties are concerned within the bounds of the Companies Act & Corporate Law. The world we are living in today makes their job even more challenging as their decisions are always under the scrutiny of not just the internal stakeholders but also that of the outside world such as customers, vendors and regulators. An increasing impact of social media also makes sure that the high-profile cases of fraud, mismanagement by directors of various corporates are bought to the notice of public which makes the various stakeholders aware of the remedies that are available to them if things in fact go wrong. Whether or not such directors are ultimately held liable for such claims, the associated defence costs can be extremely high, and the process takes up months or even years of a Director’s valuable time and money.
D&O is one such policy that comes to the rescue of not just the Directors of a firm but also its officers i.e all those who hold a supervisory position in a company’s office by offering a financial protection to such personnel.
It provides personal asset protection to the Directors and Officers when the company is prohibited to indemnify them by law. The policy covers defence costs as well as damages and expenses incurred arising from claims brought against them personally, due to wrongful acts in their capacity as directors and officers of a company.
WHO SHOULD BUY
It is a common misconception that D&O claims are mostly a public company phenomenon, it might be because such cases are mostly publicized and therefore come to public knowledge. Infact, any company small or large, public, private or not for profit, that deals with customers, has shareholders on board, offers employment to employees, has competitors in the market it operates is at the risk of litigation from any of these parties and therefore should buy D&O Insurance.
India has been creating business environment conducive for start-ups who are also exposed to such claims in a much bigger way being new entrants in the field of running and managing businesses.
Although the directors and officers carry out their duties and take decisions diligently but being humans there is always a scope of misjudgement or wrongful decisions which expose them to various liabilities and therefore the importance of this policy. The cost of insurance is insignificant vis-à-vis the protection it offers against uncertain financials losses. The premium can range from Rs.20,000 and upwards depending on the size and operations of the firm, its operational as well as loss history & the amount of cover sought.
WHO CAN BRING CLAIMS?
• Competitors – Business interference, anti-trust, contract dispute, patent infringement etc.
• Employees – Breach of employment contract, harassment, discrimination, wrongful termination, failure to promote, whistle blowing, defamation etc.
• Other related parties – Creditors, Civil rights, human rights, contract dispute, false advertising etc.
• Regulatory bodies – Banking law violations
• Internal – Minority shareholders lenders etc.
D&O’S CAN BE HELD LIABLE FOR
• Misuse of Corporate funds
• Companies Act Violations
• False statements to Government agencies
• Irregularities in Securities issues
• Breach of duty to minority shareholders
• Failure to maintain insurance
• Misuse of inside information for personal gains
• Imprudent expansion leading to erosion of shareholder wealth
• Bankruptcy / Management integrity issues
• Employment irregularity/ harassment
• Auditing and Accounting practices
• Mergers & Acquisitions
• Violations of legal statutes
• Listing of stock or debt on stock exchange
POLICY FEATURES/ EXTENSIONS
• Directorship in other companies
• Future subsidiaries
• Spousal liability extension
• Entity coverage
• Payment of defence costs in advance
• Pollution defence costs & Emergency defence costs
• Legal representation costs
• Professional indemnity carve-back for failure to supervise
• Additional protected excess limits for Non-executive directors
