Directors & officers (D&O) liability insurance: Why your business needs it
The nature of risk facing directors and officers of a company has evolved dramatically over the last decade. Traditional directors’ and officers’ policies used to provide enough protection to cover the company and its CEO, but this is no longer the case. In the age of digitisation and social media, companies and their CEOs are more vulnerable to reputational crises than ever before.
As a director or officer of a company, you can no longer assume that practicing good governance will be enough to prevent lawsuits and secure your company’s - and your own personal - reputation.
The duty of directors and officers
Directors and officers are appointed as custodians of the company, to act on behalf of the company and in its best interest. Their responsibilities are defined by the Companies Act, which specifies that parties acting in contravention of the Act could be held liable for loss or damage suffered as a result of a breach of duty. It follows then, that directors and officers can be held personally responsible for such an infringement.
What is directors & officers liability insurance?
Directors and officers liability insurance protects the personal assets of company directors and officers, as well as the company itself. It covers the directors and officers of a company should they face legal action for any wrongful acts, such as breach of duty, omission, omission or misleading statement, committed in their capacity as a director or officer. This type of insurance has become a necessity for any company, purchased on behalf of its directors and officers, because the cost of a legal defence can potentially outweigh the net worth of a smaller business.
Directors and officers (D&O) liability insurance covers litigation costs as well as settlements and awards arising from a valid claim. Claims against the director or officers may be brought by shareholders, investors, customers, consumer groups, competitors, unions, contractors or government. The main exclusions on a D&O policy are dishonesty or fraud, copyright, professional indemnity, questionable payments, illegal gains or profits, pensions, damage to property, bodily injury and deliberate acts, among others. It is best to consult with your Garrun broker about the cover in greater detail.
Contact your Garrun broker for more information on the benefits of D&O insurance.