Business owners in the Sunshine Coast often think that a Directors and Officers (D&O) insurance is only for publicly traded companies, where the risk of massive securities class action suits remains a looming threat. This isn’t true, though, because even private companies can nonetheless have their directors personally sued. Here are some basic facts about this type of management liability insurance for Buderim businesses:
Essentially, D&O insurance coverage is one payable to the directors and officers of an organisation as indemnification for any cost of legal defence after an allegation of wrongful acts. Aside from covering just the general legal costs, it could also extend to costs of criminal investigations and trials.
Fallacy on General Liability
Many business owners believe that they have little to worry about even without getting D&O insurance, thinking that their general liability insurance will cover basically the same things. However, this doesn’t always prove true, because general liability and other umbrella coverages don’t really respond that well to management liability lawsuits.
Beyond the Premium
Insurance brokers like Insuring theProduct recommend that businesses should always look beyond the premium when weighing how much coverage to get. According to Kemsley Brennan and David Hinder’s article in Mondaq.com, here are some of the questions that business owners should be asking their brokers:
1. What are the standard insuring clauses?
- Standard D&O policies generally contain three insuring clauses – Side-A, Side-B and Side-C clauses.
2. Who should be covered?
- The definition of director should be broad but carefully drafted to capture the relevant persons who make decisions within the company.
3. How broad is the “claim” definition?
- The “claim” definition should clearly pick up demands for compensation, demands for non pecuniary relief and legal proceedings, including civil, criminal, administrative, regulatory investigations and prosecutions.
4. How broad is the “loss” definition?
- It is standard for the “loss” definition to include coverage for awards of damages, judgments, settlements and defence costs. It is also common for fines, penalties, taxes, punitive, exemplary and aggravated damages to be excluded from coverage.
Directors and officers should also look into the policy of the insurance coverage regarding rescission. This means that there should be an express notice in the coverage that any fraud or impunities found within the application cannot be imputed to innocent directors and officers who took no part in the discovered fraud.
Owners of private businesses are highly encouraged to study the value of getting reliable management liability insurance not only for their directors and officers but also for other potential lawsuit hazards in their company.
Management liability insurance has developed rapidly over the last decade and is now considered an integral part of a small business insurance program. Extensions are available to cover Employment Practices Liability, a range of Statutory Liability exposures some times including fines and penalties.
Our team at Insuring theProduct are experienced small business insurance specialists and are based here on the beautiful Sunshine Coast whilst servicing other areas with regular visits and the use of technology.
(Source: Directors’ and officers’ liability insurance – 10 questions you should ask your broker, Mondaq.com)