Directors and Officers Liability Insurance
Directors hold a position of trust and are responsible towards the company, the shareholders, the employees, and the public at large. They may become liable to pay damages in scenarios such as the following:
- Mis-statement in prospectus
- Inaccurate statement of financial conditions
- Errors in annual accounts ? Conflict of interest
- Lack of judgment, diligence, good faith
- Mismanagement of funds
- Unfair allotment of shares
- Using insider information
- Unwarranted dividend, salary, compensation payments
- Unfair dismissal of an employee
This needs urgent attention as the whole environment after Satyam fiasco and recent scam including recent claim filed against directors of a PSU company requires independent directors to protect not only their image but their personal fortune from any of the risks which they are exposed, without any of their involvement/fault.
The D&O Policy does not belong to the Company despite having been secured by the Company. It is a personal policy belonging to each of the Directors and Officer of the Company and its subsidiaries. The Directors and Officers Liability policy protects the personal fortunes of individual directors and officers, in respect of personal liabilities arising out of their wrongful acts like breach of duty, breach of trust, neglect, error, misstatement or misleading statement.
The insurance policy has two coverage clauses:
- Legal liability towards claims made against the Insured Person (s) to the extent not indemnified by the Insured Organization
- Reimbursement to the Insured Organization on account of indemnification to each Insured Person.
- Defense costs, which are quite high at times, are also paid.
- The policy additionally covers heirs, estates & legal representatives and spousal liabilities.
Note: The policy provides coverage to the extent the allegations are false or proven false. In the event there is an intentional wrongdoing, there is no coverage afforded by policy.