We are living in an increasingly litigious society today. Increased personal risks are faced by directors and officers of public companies in the current corporate governance climate. The liability risk for Directors and Officers has never been higher. Add to this the prevalence of lower investor tolerance for performance failures; all this make for potentially greater risk of litigation.

Exercising due diligence is the most important advice for directors and officers. It is very unlikely that a director or officer will be held liable if appropriate care was taken in coming to a decision. This means ensuring that there is timely, adequate and appropriate information on which to reach a conclusion.  

In essence, directors and officers will not be liable for a breach of their duty of care if they act prudently and on a reasonably informed basis. Perfection is not demanded; rather a court will examine whether an appropriate degree of prudence and diligence was brought to bear on a decision. In order to establish the due diligence defence, it is important to keep a proper record of deliberations made and actions taken

Despite all the above precautions, Directors and Officers cannot be immune to litigation directed at them by virtue of their capacity. Just as accidents cannot always be averted, Directors and Officers cannot always shy away from litigation and liability. In such a situation, it is Directors’ and Officers’ Liability and Company Reimbursement Insurance which can come to the rescue of the beleaguered Directors and Officers.

What does the Policy indemnify?

1. Directors & Officers Reimbursement

Referred to as ‘Side-A Coverage, this  provides coverage directly to officers for loss including defence costs resulting from claims made against them for wrongful acts committed by them in their capacity as Directors or Officers of the Company.

[The above coverage is applicable when the corporation / company does not indemnify its directors and officers]

1. Corporate Reimbursement

Referred to as Side-B Coverage, this reimburses the insured Corporation / Company for its loss where the Corporation / Company indemnifies its directors and officers for claims against them.  Please note that Side-B coverage does not protect the corporation against its own (direct) liability arising independently of liability of its directors and officers.

“Wrongful Act” means any error, misstatement, misleading statement, act, omission, neglect breach of duty or breach of trust committed, attempted or allegedly committed or attempted by an Insured Person individually or otherwise, in his Insured Capacity.

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This Policy is on ‘Claims Made’ basis. For claiming indemnity under the policy, the wrongful acts as above must have occurred before or during the policy period, and claims made against the Insured during the policy period or any extended reporting period.

The policy is subject to Limits of Liability for

a). Each Loss, and

b). Each Policy Period (aggregate limit for all claims during the policy period).

“Loss” shall mean legal liability of the Director or Officers to pay:

1. Damages or Costs awarded against the Directors or Officers.
2. Settlements as agreed by the insurer.
3. Defence costs and legal representation expenses incurred with the prior written consent of the insurer.

The limit of liability to pay damages or settlements will be reduced and may be exhausted by Defence costs.

IMPORTANT EXCLUSIONS:

The insurer shall not pay loss from any claim arising from the following:

1. Goods or Products manufactured, sold or supplied by the company
2. Libel or Slander.
3. Pollution or Contamination of any kind.
4. Dishonesty, Fraud or Malicious Conduct of the Directors / Officers.
5. Any circumstance existing prior to or at the inception of this policy, which the Directors or officers of the company knew as likely to give rise to a claim
6. Relating to any Superannuation, Provident Fund, Pension, Profit sharing, Health and Welfare or other Employee Benefit Plan or Trust.
7. Bodily injury, sickness, disease or death of any person.
8. Destruction or damage to any tangible property including loss of use thereof.
9. Fines or penalties or punitive or exemplary or multiple damages, if deemed uninsurable under the law.
10. Any amount incurred by the insured in connection with investigation or evaluation of any claim,
11. Return by Directors or Officers of any remuneration paid to them without previous approval of shareholders of the company.

EPL Coverage

Employment Practices Liability (EPL) coverage is often a common addition to corporate coverage by endorsement to the D&O Policy or as a stand-alone policy issued to the company.

It protects directors, officers, employees, and / or the company against employment related claims brought by employees and in certain circumstances, specified third parties. It provides coverage for wrongful dismissals or even failure to promote, sexual/racial/age/work harassment, etc. EPL claims have been dramatically increasing frequently.

Entity Securities Coverage

This is an optional coverage to protect the corporation against securities claims. Entity coverage may be part of the policy form or may be added as an endorsement.