QUESTION: ''D & O policies can take different forms, depending on the nature of the organization and the risks it faces, so it's best to seek out an insurance company with deep experience in this specialized field. The policies are generally purchased by the organization to cover a group of individuals rather than by the individuals themselves. Even the non-profit organizations may also purchase D & O insurance policy for a better protection''. Comment.
DIRECTORS AND OFFICERS (D&O) INSURANCE is liability insurance that covers or protects Directors, Officers and Employees of company from claims which may arise from decisions and actions taken while serving their duty. It covers legal Défense costs or other costs incurred by company in defending such individual against lawsuits.
Directors & Officers can be sued or alleged for wrongful acts related to:
- Breach of duty, breach of trust, misstatement or misleading statement, defamation, libel or slander, act of omission or negligence.
- Employment process or inappropriate workplace conduct such as discrimination, retaliation, defamation, failure to promote, sexual harassment etc.
- Claim solely because of their status.
Any privately or publicly held company with corporate board or advisory committee should take D&O policy to protect their Director's, officers and employees.
Directors and officers are legally responsible and bound by duty towards various stakeholders like shareholders, employees, creditors, customers, competitors and government or regulatory bodies.
Any breach or non-performance in the duties can result in claims against directors, officers and employees by reason of wrongful act and need to incur various expenses like defense costs, damages or compensation and other incidental costs. This can affect company's growth and performance.
This policy will protect against such expenses, losses and claims.
WHAT IS COVERED?
- Covers Directors and officers for claims where the company refuses to or is financially unable to pay for loss and the Directors and officers have to protect themselves, against demands, legal suits, allegations
- Covers company under Employment practice liability (EPL) from wrongful acts arising out of allegations and legal suits related to employment process or inappropriate workplace conduct such as sexual harass-ment, gender or caste discrimination, retaliation, defamation, failure to promote, etc.
- Impact damage of any kind, i.e. damage caused by impact of, Covers costs incurred by the insured company in defending such individual against losses.falling trees, aircraft, wall etc.
WHO WILL BE INSURED?
Following parties are insured under D&O policy:
- Director, Officer, or employee of a company.
- An outside entity director.
- A consultant as member appointed by company's board.
- Trainee
- Employed Lawyer
- Spouse of insured person.
- Administrator, heirs, legal representatives.
ANSWER:
It is a misnomer to believe that only large non-profit organizations need Directors & Officers (D&O) insurance. Directors and officers of every-sized non-profit organization have meaningful exposure to personal liability. The liability for directors and officers of small corporations is at least as high as that of for-profit corporations. Large numbers of directors and officers for non-profit organizations lack experience. Oftentimes, they may also lack sufficient knowledge of their legal duties and responsibilities regarding the non-profit they serve.
Directors and officers of non-profit organizations who do have knowledge or experience sometimes take advantage of the less formal approach of non-profits and fail to take the same business approaches to decision-making as they would when working for a for-profit corporation.
Non-profit boards that fail to protect their organizations with a D&O insurance policy may find that the cost of just one claim is far larger than the cost of any insurance premiums they would have paid if they had purchased a D&O insurance policy.
In the context of various shareholder disputes, the liabilities under the Companies Act, 2013 (the Act) could also increase pressure on defaulting directors, nominating shareholders, or promoters.
In addition, while resignation may protect a director from subsequent defaults, an erstwhile director may still continue to be liable for any defaults that took place during his or her tenure. The penal provisions of the Act may be cause of concern about the role, accountability, and responsibility of non-executive, nominee, and independent directors, who could be caught on the wrong side of the company's disputes.
D&O liability insurance applies to anyone who serves as a director or an officer of a for-profit business or non-profit organization. A directors and officers liability policy insures against personal losses, and it can also help reimburse a business or non-profit for the legal fees or other costs incurred in defending such individuals against a lawsuit.
D&O insurance will not prevent claims from occurring; however, it does mitigate the high costs associated with defending claims. Lawsuits and potential claims may originate with vendors, donors, competitors, employees, government, regulators or others.
Hence, regardless of the organization's size and board experience, all non-profit organizations need to purchase D&O insurance protection.
DISCLAIMER: The case study presented here is only for sharing information with readers. The views are personal, shall not be considered as professional advice. In case of necessity do consult with professionals for more clarity and understanding on the subject matter.
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