Director’s & Officers Liability Insurance (D&O) Policy
Organizations face a wide range of risks and exposures that can result in legal proceedings being brought against the company. In certain circumstances, a director or officer of the company may be exposed to the possibility of being personally sued. Publicly held companies have two to three times as many claims made against their directors and officers than privately or closely held companies.
D&O insurance protects directors and officers against legal liability for wrongful acts committed or allegedly committed while discharging their official duties & responsibilities.
Wrongful acts include but limited to errors, omissions, misstatements, misrepresentation, misleading information, negligence, breach of duty.
Beneficiaries are the directors, officers. The corporation itself can be covered additionally. The legal suits against directors, officers can be bought for various reasons. Shareholders might sue for insider trading, misstatement about the public offering proceeds, merger & acquisition. Creditors might sue for misrepresenting the financial health of the corporation. Competitors might sue for unfair trade practices. Regulator might investigate and seek explanation for not complying with the regulation, other statutory provisions. There may be failure to supervise the employees (acts of omission, breach of trust) resulting into losses by other interested parties. There may be failure to supervise the employees resulting into pollution losses.
The number of lawsuits filed by employees against their employers has been rising. Many companies are turning to Employment Practices Liability Insurance (“EPLI”) to manage this risk. There may be employment practices liability arising out of –
- Sexual harassment.
- Wrongful termination.
- Nepotism & favouritism.
- Negligent evaluation.
- Deprivation of career opportunity.
- Wrongful infliction of emotional distress.
The employers can protect themselves from these and other types of employment claims by securing EPLI coverage.
With the Companies Act 2013, the class suit action, in line with the developed countries, has been brought to reality and we may see more of that in the coming days.
The policy has become critical due to several factors such as
- Huge defence cost.
- Big claim size.
- Indian companies going global and need protection against global exposures.
- Helping the company to attract and retain independent directors.
- Increasing shareholder awareness and increasing general awareness.
- Increasing merger and acquisitions.
- Complex legal system.
- High awards largely due to deep pocket principle etc.