Discover the personal liability exposures of directors and officers, and the insurance policies designed to protect them.
Duty, liability, and indemnification
The directors and officers of an organisation have a broad range of duties. If things don’t go to plan, they can be held responsible for their actions.
Directors duties
An organisation’s management is required to satisfy a range of directors duties in the performance of their role.
Board of directors liability
Management may be exposed to board of directors liability if they fail to perform their duties as expected.
Directors indemnification agreement
A directors indemnification agreement is the first line of defence for protecting an organisation’s management from personal liability.
Types of insurance coverage
Directors and officers liability insurance is an effective way of transferring risk away from an organisation and its management, and onto an insurer. It is available in a variety of formats.
Directors and officers liability insurance
Directors and officers liability insurance protects an organisation and its management from managerial-related claims.
Employment practices liability insurance
Employment practices liability insurance protects an organisation and its management from employment-related claims.
Management liability insurance
Management liability insurance protects a small and medium enterprise and their management from a broad range of claims.
D&O insurance for nonprofits
D&O insurance for nonprofits is an important consideration for community-focused organisations and charities.
Side A coverage
Side A coverage is an important consideration for individuals in the event that they are not indemnified by an organisation.
Side C coverage
Side C coverage is an important consideration for public companies who are at risk of securities-related claims.
Typical policy attributes
There are a range of overarching concepts that apply to insurance policies designed for directors, officers, and the organisations they serve. These concepts are unique, and not shared with other general insurances.
Claims made policy
A claims made policy requires that a claim be made against and insured and notified to an insurer within a policy period, for any subsequent loss to be covered.
Prior acts coverage
Prior acts coverage describes a policy’s natural ability to provide coverage for acts occurring prior to the commencement of a policy period.
Retroactive date
A retroactive date, also known as a prior acts date, can be used to restrict the prior acts coverage of a policy.
Pending and prior litigation date
A pending and prior litigation date aims to exclude any claim that has commenced in any way prior to a specified date.
Components of a policy wording
A policy’s core coverages are outlined in its insuring clauses. Additionally, it has a range of sections that are used to refine the intended coverage.
Wrongful act
A wrongful act describes an allegation by a claimant of behaviour by an insured that they believe has caused them
Extensions
Extensions broaden a policy’s coverage from its core insuring clauses.
Exclusions
Exclusions restrict a policy’s coverage for certain situations and events.
Conditions
Conditions outline the various subjectivities that attach to a policy’s coverage.
Selecting a limit of liability and self-insured retention
When an organisation and its management purchases directors and officers liability insurance, there are a couple of important elements to consider.
Limit of liability
A limit of liability is the maximum amount an insured can be indemnified for covered loss in a policy period.
Self-insured retention
A self-insured retention is the amount of covered loss an insured will need to incur before their policy can respond.
Arranging coverage for an organisation
The are a range of processes involved in establishing a directors and officers liability insurance policy, and making changes if required.
Application process
An application process is undertaken by an organisation and its management to establish insurance coverage.
Underwriting process
An underwriting process is undertaken by an insurer to assess the risk of an organisation, and set the terms and pricing of coverage.
No known loss letter
A no known loss letter is used by an organisation to declare that it is not aware of any undisclosed claims and circumstances.
Duty of disclosure
A duty of disclosure is an essential part of securing insurance coverage throughout its lifecycle.
Mid-term alterations to coverage
There are a range of situations where changes to an organisation’s corporate structure midterm, can have an effect on its insruance coverage.
Change in control
A change in control provision can affect an organisations coverage if there are midterm changes to corporate structure.
Run off insurance
Run off is what occurs when a policy undergoes conversion, following a change in control.
Extended reporting period
An extended reporting period is often made available to an organisation following a change in control.
Discovery period
A discovery period may provide limited tail protection.
Claims handling
Many organisations purchase insurance hoping it will never be needed. However, realistically it’s a matter of time before claims are considered.
Claim notification process
A claim notification is made by an insured, when they become aware of a claim or circumstance.
Duty to defend
The duty to defend an underlying claim may rest on the insured or insurer, depending on the structure of a policy.
Claim settlement process
Claim settlement is the process by which an insured seeks indemnity from an insurer for the costs they have incurred.
Claim examples
Claims examples are useful for understanding the risk exposures of directors and officers and their consequences.
The evolution of coverage
Sometimes it’s helpful to understand the broader context of why things are the way they are, and how things came to be.
History
The history of directors and officers liability insurance is an interesting look into the evolving nature of managerial risk.
