According to the law directors and officers of the company have a duty of care and trust. Out of these obligations, insurance was created that covers the directors and officers of the company personally against lawsuits, which will be filed against them by third parties, for negligence in the management of the company.
Claims may be filed by shareholders (investors), regulators and other stakeholders of the company. In addition, there is available additional coverage which covers, employee claims for employer-employee relations, for example, dismissal without a hearing, discrimination in the workplace, and more. Also, claims from competitors for violations of intellectual property rights, various securities claims, and even regulatory investigations.
In fact, according to different legal theories , companies have three different coverages that it can provide to its directors and officers: exemption, indemnity, and insurance. However, there are cases where the law does not permit the company to indemnify or exempt the D&O. In this situation, the only protection is insurance.
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Who is Directors’ and Officers’ Liability Insurance Intended For?
- For public and private companies, including companies with external investors and/or with long-term commitments.
- Small/family companies, where there is an identity between the company’s shareholders and its officers.
In addition, the policy is also relevant for non-profit organizations. - Important Points in Insurance for Directors and Officers Liability
The main risk for company executives is a situation in which the company enters insolvency proceedings. This is the first thing that the insurance company examines during the underwriting process.
This is a policy based on a claim as opposed to a policy based on an event. That is, to benefit from insurance coverage, the policy must be in effect when the claim is filed and not when the claimed event occurs. This is subject to the retroactive date specified in the policy.
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Directors and Officers Liability Insurance for none profits
The insurance is also suitable for association managers and committee members and provides them with protection against lawsuits and/or regulatory investigations related to proper management and all that concerns the supervision of the association’s business.
Directors’ and Officers’ Insurance Cost
The cost of the insurance policy is determined according to the level of risk, which is evaluated according to the total assets, the history of claims, the liability limit of the purchase, the financial situation, the company’s activity, and the countries in which it operates.
Application Form for Directors’ and Officers’ Liability Insurance
In order to receive a quote for D&O insurance, you must fill out an application form. In light of the complexity of this insurance, Lamda experts will accompany you in filling out the form to obtain the most attractive quote for you.
Prior pending litigation date in Directors’ and Officers’ Insurance
The prior and pending litigation date for outstanding pending claims is the date specified in the insurance covering the directors. From this date onwards, claims filed against the company and later developed into claims against directors and officers will be covered under the policy. Conversely, claims pending before this date, which developed into claims against directors or officers of the company, will not be covered under the policy.
The prior and pending litigation date is usually when the company first purchased the insurance for the board of directors members. Therefore, when switching between insurers, make sure to withdraw this date. Not to be confused with a retroactive date, which refers to events that led to lawsuits against directors and officers. Only events that occurred after this date will be covered under the policy.
The Main Difference Between Professional Liability Insurance and Directors’ and Officers’ Insurance
D&O insurance is intended to cover managerial decisions made by the D&O , unlike professional liability insurance, which covers the company for failure in providing it’s professional services. It can be concluded that directors’ and officers’ insurance is actually professional liability insurance for executives.
The Tips of Lamda Experts for Officers’ and Directors’ and Officers’ Insurance
- Make sure that the retroactive date in the policy covers acts that occurred, at the very least, from the day the company was established.
- Make sure the policy provides coverage worldwide.
- Make sure that the policy does not include insolvency, patents exclusions.
- Make sure that the policy text is tailored to the company’s business environment and its risks.
- Purchasing directors’ and officers’ insurance before raising funds from investors is highly recommended. Officials’ insurance in force indicates to investors that this is a serious company that will also ensure the director/officers on its behalf.
- Before purchasing an officers’ policy, you should consult with an attorney/insurance agent who is an expert in the field.