D&O cover provides liability protection to company directors and officers to protect them from claims that arise from decisions they make whilst running a Company. The policy protects a Director or Officer by:
– Paying legal defence costs
– Paying settlement costs or awards
– Investigation costs
– Other costs such as mitigation costs, civil fines & penalties etc.
What Does a D&O Policy Look Like?
There are usually three sides to a D&O policy:
Side A – Directors personal asset protection where no company indemnification is available
Side B – Provides balance sheet protection to the company, where the company has advanced legal costs on behalf of a Director
Side C – Provides cover for claims brought against the entity itself in certain circumstances
What is Entity Cover?
Coverage under a D&O policy for the direct liability of the company. Historically, no entity coverage was provided by a D&O policy. The purpose of the policy was specifically to protect the directors and officers from the risk of personal liability. Usually, the company for which the directors and officers worked also wanted to protect them and agreed to indemnify them subject to reimbursement by the D&O insurer. Because the company was typically named in a suit with its directors and officers, however, a dispute arose over what portion of defence costs, settlement amounts or judgments were properly credited to the directors and officers and covered under the D&O policy, and what portion were properly credited to the company and thus, not covered. This led to arguments and has now resulted in D&O policy forms that expressly address entity coverage.
The principle of a company indemnifying its directors to protect them against claims has been ingrained in Company Law for many years. However the savvy director should not solely rely on this indemnification provision, as strict conditions apply under the Companies Act and the company may not want or be able to provide this indemnity because:
D&O is only for those running public limited companies or in very large private businesses”
This not the case. Every director or officer is open to claims. Claims can originate from anywhere – customers, competitors, suppliers, employees, the company itself, regulators and governmental and law enforcement agencies. A good way to frame the conversation is to compare D&O cover to catastrophe cover, something that we are all used to taking out as individuals to protect our personal assets
“We don’t need D&O cover because the directors are covered by the company’s limited status”
Many directors assume they are covered by the company’s limited liability status, but this is not the case. Shareholders’ liability is limited, but that of the directors and officers is not. Brokers need to point out that the directors or officers own cash, home, pension pot, other personal assets and even their liberty is at stake should a claim occur
Director & Officer Claims Examples
Remember: D&O cover provides liability protection to company directors and officers to protect them from claims that arise from decisions they make whilst running a company. Some D&O policies also extend to provide cover for the entity itself i.e. entity cover, whereby cover is provided for claims brought against the entity itself in certain circumstances.
Copyright © 2015 S.A. Faughnan (Brokers) Ltd.
S.A. Faughnan (Brokers) Ltd. is regulated by the Central Bank of Ireland.
Company Reg. No. 88953.
Neither S.A. Faughnan (Brokers) Ltd., its directors, employees, servants and agents, affiliates or other representatives shall be liable in respect of claims, liabilities, costs, demands, causes of action, damages, losses, expenses (including without limitation, reasonable legal fees and costs of proceedings) arising out of or in connection with your access to or use of this Website or the use and/or dissemination of personal information relating to you in accordance with this Privacy Statement and your consents.
Designed By : Web Results