What is a D&O insurance policy?
A D&O insurance policy (short for directors’ and officers’ liability insurance) is an insurance contract designed to cover the civil liability of directors and senior officers arising from the performance of their duties.
Scope of cover under a D&O insurance policy
D&O insurance policies cover losses resulting from acts or omissions by directors or senior officers that may cause damage to shareholders (whether in private limited companies or public limited companies) as well as to third parties, such as customers or suppliers.
The company takes out this type of insurance for the benefit of its directors and senior executives, who are exposed to the greatest level of risk due to the scope of their decision-making authority and responsibilities. When arranging a D&O insurance policy, it is essential to review its terms and conditions carefully. The policy should provide cover for both legal defence costs and an adequate indemnity limit reflecting the size of the business and the nature of its operations.
Difference between D&O insurance and other liability insurance policies
It is important to distinguish between general liability insurance and a D&O insurance policy. General liability insurance protects the company itself, whereas a D&O insurance policy protects directors and officers personally. Directors and senior officers may be held personally liable and are therefore exposed with their entire present and future personal assets for wrongful acts committed in the discharge of their duties.
Why should directors require a D&O insurance policy?
Any director or senior officer should require the company to arrange a D&O insurance policy if it has not already done so on its own initiative. Anticipating potential legal liabilities should form part of the risk management framework of every modern and professionally managed business.
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