What is the Directors and Officers (D&O) Insurance Policy
Directors and Officers Insurance is a type of insurance product that protects the directors or officers of an organisation against personal losses if they are sued. The policy also covers the legal fees and other costs incurred by the organisation due to the lawsuit filed against them. This liability insurance policy basically protects any employee of the organisation who makes decisions and takes actions that can be sued. The possible reasons can be a breach of trust, negligence of duty, or mistreatment alleging discrimination, retaliation, and sexual harassment, among others.
Why do we need it?
If your organisation, be it private or public, has a corporate board or advisory committee in place that looks over the work, you should buy the Directors and Officers Insurance liability insurance policy. On any given day, the employees are doing some form of business involving stakeholders like shareholders, creditors, customers, and regulatory bodies. Issues ranging from breach of trust or negligence of duty can result in claims against the company’s directors, officers, and employees, and the complainant can ask for a hefty compensation. A legal case can drag on for years and lead to huge expenses. That apart, a case on any prominent member of the company can hurt the market reputation of the organisation, which can impact the business as well. It may also require massive public relations exercises as part of damage control, adding to the cost.
Directors and Officers Insurance liability insurance policy comes into the picture when the company either accepts or refuses to pay damages. In the case of the former, the insurer pays the compensation amount based on the policy wording, and in the latter, it takes care of the legal expenses to fight the claim request that is being seen as unnecessary or fraudulent. The insurer also takes care of the situation when the company is in no financial status to do so. When this policy has your back, your employees are encouraged to take bold steps that can give a fillip to the company's growth.
What is Covered by D&O Insurance?
- It covers directors and officers of a company for loss incurred due to lawsuits or allegations when the company is not financially capable or refuses to pay for the claims.
- It protects the company against wrongful acts due to legal suits and allegations relating to employment or workplace conduct, such as sexual harassment, discrimination against caste or gender, defamation, etc.
- It covers impact damage, i.e., damage caused to an employee due to losses, falling wall or tree, etc.
What is Not Covered by D&O Insurance?
- Bodily injuries and property damage
- Benefits, salaries, wages, or overhead expenses
- Fraudulent activities and personal conduct
- Claims filed against insured persons by shareholders
What kind of policy should you buy?
Well, to begin with, assess your insurance needs. By evaluating factors, such as your company’s business model, type of clients and customers, annual turnover, etc., you can estimate what kind of compensation would be claimed if things go south. You can identify the type of claims that can be potentially made and get them added to the policy. Next, buy the policy from an insurer with experience in dealing with such cases. Their speciality in risk mitigation can prove to be a key factor. Unlike other standard insurance products, this policy requires a team that understands risk advisory well. Check the nature and scale of the issues handled by them in the past before you pick the insurer. Also, find out how fast and hassle-free their claim processes are.
Conclusion
Whether you are a big name in the industry with several branches or a small company that is relatively new, you have to stay ready for a lawsuit. Directors and Officers Insurance will come to your aid and help you financially to cover legal fees, settlements, and financial losses. It is essential to remember that this policy only covers the damages related to the organisation. If any employee gets sued due to reasons outside the purview of the company, the organisation does not intervene in the matter.