Posted on: August 27, 2021

What to know about D&O: Directors Liability Insurance

In an increasingly litigious world, the very qualities possessed by your company’s board of directors – initiative, vision, strategic thinking, and risk-taking – can also make them vulnerable to financial risk. Directors and officers are personally at risk to sustain financially crippling lawsuits for decisions – even those made in good faith.   

Fortunately, directors and officers (D&O) liability insurance exists to keep your key people covered in the event of a claim, providing security to directors, officers, and executives when making tough decisions in today’s modern business environment. 

What is directors and officers liability insurance?

 Although it’s one of the most significant forms of insurance, D&O is unfortunately misunderstood by many. In short, it covers directors and officers if their company or organisation is sued. It insures against personal losses, and can also help reimburse a business for the legal fees compensation costs incurred in defending such individuals against lawsuits. 

Without D&O insurance, if a board member is found to have breached, or is accused of breaching a duty or obligation, he or she may have a liability to pay compensation or a fine, in addition to bearing the cost of legal defence.  

Who is it designed for?

A huge misconception surrounding D&O is that claims only really impact large, public companies. At GIA, we urge you to remember that all organisations, whether public, private, or non-profit, and the directors that lead them are vulnerable to a multitude of D&O exposures. 

 It’s purchased by the company for the benefit of its board members. Not only will it provide financial protection for your leaders, but D&O insurance is an important tool that assists your company in attracting and retaining talented officers and directors. Without it, many executives may refuse to work for you as it threatens their personal assets and increases individual financial risk.   

Why do we need D&O liability insurance?

 With the increasing frequency and size of claims made across Australia, the need for directors and officers liability insurance is clear cut.   

Business leaders can be held responsible for a wide – and ever-increasing – range of corporate issues. This might include failure to comply with laws and regulations, company or stock underperformance and human relations issues.  

Our complex business environment is persistently cultivating new risk exposures, including cyber threats, corporate social responsibilities, and climate-change-driven litigation, that continues to attract personal liability for D&Os.  

If accused of breaching a duty or obligation, directors and officers may be required to pay: 

  • Compensation to an aggrieved party. 
  • A fine or penalty. 
  • Legal costs of the other party. 
  • Your own legal defence costs. 
  • Interest on any of the above.

How do D&O policies work?

A proficient insurer should customise policies to meet the needs of each individual business. While there is no industry-standard policy form, most D&O policies read as three separate coverages packaged into one policy: Side A, Side B, and Side C.  

  • Side A (directors and officers liability cover) comprises of liability for claims and legal defence costs arising from wrongful acts in their capacity as a D&O. It essentially provides cover for past and present directors and officers. 
  • Side B (company reimbursement cover) reimburses the company when it indemnifies individual directors’ and officers’, such as under a deed of indemnity. 
  • Side C (company securities claims cover) responds when both individual D&Os and the company are named as co-defendants in a wrongful act involving the violation of securities law.  

We can help

GIA Insurance Brokers can help you customise and implement a directors and officers liability insurance policy that fits with your business. With our expertise at hand, you can turn your attention to acquiring the best talent and running your company, instead of worrying over protracted litigation.  

Contact us today to find out more.  

General advice warning

The information above may be regarded as general advice. That is, your personal objectives, needs or financial situations were not taken into account when preparing this information.

Accordingly, you should consider the appropriateness of any general advice we have given you, having regard to your own objectives, financial situation and needs before acting on it. Where the information relates to a particular financial product, you should obtain and consider the relevant product disclosure statement before making any decision to purchase that financial product.

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