Directors and Officers Liability Insurance (D&O)

What is D&O liability insurance?

Today's Directors and Officers (D&Os) are operating in a litigious and complex environment, where they can be held personally liable for the mismanagement of the company due to wrongful acts. When taking up these onerous positions D&Os should make sure there is adequate D&O cover in place.

Typical sources of claims include:

  • Shareholders – related to mergers and acquisitions, financial performance, executive compensation, stock or other offers, financial reporting, inadequate or inaccurate disclosure, insolvency and conflicts of interest.
  • Clients – related to deceptive trade practices, dishonesty, contract disputes, and sales process.
  • Other stakeholders or third parties – employees, SARS, regulatory and government issues, banks, trade unions, competitors and liquidators.

How does D&O cover work?

A D&O policy typically provides coverage under three different scenarios:

  • Side A or coverage for individual's personal liability: The policy provides coverage for claims made against directors and officers for "wrongful acts" where indemnity from the insured company is not available.
  • Side B or company reimbursement coverage: Where the insured company indemnifies the director or officer, the policy will reimburse the insured company.
  • Side C or securities entity coverage: companies who raise or issue new capital can buy additional cover for claims against the company should a claim arise from a wrongful act.

Key features:

  • Broad definition of insured person.
  • Broad definition of wrongful act.
  • Advancement of defence costs, including for claims alleging criminal acts.
  • Civil fines and penalty cover if permissible under applicable law.
  • Spousal or estate liability coverage.
  • Cover for retired insured persons.
  • Outside director extension: cover for D&Os who, at the request of the insured company, take up external or outside directorships.
  • Employment practices extension: cover for claims brought against D&O alleging discrimination, harassment or any other wrongful employment practices.
  • Legal costs incurred in fighting extradition proceedings.
  • Circumstance or claim mitigation: mitigation costs, prosecution costs and professional fees.
  • Additional protection for Non-Executive Directors.
  • Reputation expenses.

Key exclusions:

  • Dishonest and fraudulent acts.
  • Illegal remuneration or personal profit.
  • Existing or known claims or circumstances.
  • Property damage and bodily injury (defence costs are however available).
  • Pollution claims (defence costs are however available).
  • Professional indemnity.

Key underwriting information:

  • Latest audited annual financial reports and accounts
  • Completed proposal form
  • Company organogram
  • Claims record

Regardless of size or status, there is no one-size-fits-all approach to business risk insurance. It all depends on the size of the company, nature of its business and its unique levels of exposure. Consulting with a professional Aon risk advisor is an invaluable exercise in protecting your business, reputation, clients, colleagues and bottom line.

Talk to Aon today, and Empower Results.

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