Directors Officers Liability Insurance is created with the intention of protecting directors and offices from any risks they may face at the workplace. It is designed to protect directors and offices personally from reputational and financial costs of legal action, as the costs of defence can be large whether they are found liable or not.
Responsibilities For Directors And Officers Within An Organisation
Directors and officers within an organisation perform several duties and have a great deal of obligations. Some of them include:
- Obligation to exercise powers in the best interests of the organisation.
- Duty to prevent conflicts of interest.
- Obligation to disclose any personal conflicts.
- Obligation not to use position for personal benefits.
- Duty to proceed with diligence and care, along with prevention of insolvent trading.
- Disclosure obligations depending on the circumstance.
- Duty to comply with provisions as defined under respective state legislature.
Any breach of these duties and obligations may result in compensation to be paid out to aggrieved parties, fines, legal costs of other parties and legal self-defence costs. Any person can make a claim against directors and officers, including shareholders, regulators, employees, competitors, creditors and customers to name a few.
Why Is Directors Officers Liability Insurance Important And What Are You Protected Against?
Uncertain economic landscapes can put boards and corporate executives firmly in the firing line. In fact, they are under more scrutiny than ever before from stakeholders and regulators – and can even be found personally liable for certain decisions they have made on behalf of the company. Directors officers liability insurance has been created to protect them from these unforeseen risks that may arise.
As companies increasingly get exposed to more risks, the need for directors insurance has become more important than ever before. Board members and directors do not want to risk their personal assets when serving as directors or officers for a particular organisation. Some areas that directors and officers may be protected against include:
- Directors and officers liabilities that are non-indemnifiable
- Employment practices liability
- Reimbursement cover for companies
- Defence and representation expenses
- Securities cover for companies
- Defence costs for any investigations and proceedings under OH&S
The definition of directors and officers within a company should ideally be broadened to include all relevant personnel who make decisions within an organisation, despite their specific job title. Coverage can also be extended to employees who may be named as defendants in any particular circumstance. Some exclusions may restrict coverage for directors and officers, including:
- Fraudulent conduct
- Receipt of personal profits to which the director was not entitled
- Professional indemnity exclusions
- Prior or pending litigations that occurred before the policy began
- Prior acts that took place before the current policy began
How To Determine The Right Directors Officers Liability Insurance Policy For Your Needs?
When determining whether the policy fits into your specific needs, you will need to predict or analyse a range of claims that can be raised against the directors of your company.
An insurance broker is best equipped to tackle your situation because they know exactly what is involved in taking out directors officers liability insurance. They will take into account some of the following details:
- Size of the organisation
- Ownership structure of the organisation
- Business activities undertaken
- Current investments and future strategies for investments
- Location of operating the business
- Risk profile of the business and its directors
- Possible claim scenarios, along with cost of defence for these claims
- Potential claim frequency
The premium for your company will also be decided based on these factors. Apart from the premium, you will need to consider the deductible charged for the policy because every fresh claim will raise the deductible amount to the original limit. If your company and its directors are subject to more frequent claims, you’re probably better off paying a higher premium for a lower deductible to reduce your out of pocket expenses for the longer term.
Oracle Group is dedicating to helping companies assess their risk profiles, so that directors are not held personally liable when working in the interests of their organisations. Our experienced brokers can help you take out the best directors officers liability insurance for your particular business needs.