Directors and Officers Liability (D&O) insurance is both a simple yet complex policy. At its core, D&O insurance offers protection to a company’s directors and officers for claims from third parties alleging wrongful acts in their duties. This protection is necessary due to Australia’s legislation that allows for company directors to be held personally liable. However, there are a variety of components that may or may not be required depending upon the structure and activities of your company.
There are three parts to a D & O policy, commonly called Side A, B & C:
Side A is basically the cover described above that provides protection to the individual directors
Side B is reimbursement cover for the company itself where it has indemnified the directors for actions brought against them
Side C is an optional cover (often called Securities cover) for public-listed companies that provides protection against actions arising from alleged breaches of securities market conduct e.g. shareholder actions
Common exclusions include (but are not limited to):
- Actions brought by major shareholders (what is defined as ‘major’ varies from insurer to insurer)
- Prospectus liability (this cover needs to be specifically requested from insurers if required and is subject to thorough consideration by insurers prior to offering cover)
- Deliberate acts of fraud or dishonesty
- Insolvency (cover can often be extended to include this if complete financials are provided and the insurer is satisfied with the risk)
Importantly, D&O insurance is written on a claims-made basis. This means that you need to have a policy in place at the time you are notified of a claim against you. If you cancel a D&O policy, you generally have no cover for any claim notified to you from that date on, even if you did have a policy in place when the alleged breach took place.
As with many policies there are dramatic differences between the level of cover offered by various insurers so it is essential to seek expert advice from an insurance adviser when considering this type of insurance.