Corporate and executive scandals, amendments to securities regulations, increased shareholder awareness and a heightened focus on corporate governance have made being a company director or officer in the 21st Century an increasingly risky proposition.
Directors & officers (D&O) liability insurance provides protection for senior leaders (and the companies they serve) if they are the subject of a claim or investigation arising from the performance of their duties at their company.
Once a claim is alleged for any wrongdoing, there are two sources of protection – indemnification from the companyand/or coverage from the company's D&O policy(ies).
For individuals, the policy provides personal asset protection should the company's indemnification fail for any reason. For the company, a D&O policy provides balance sheet protection for the company’s indemnified, and for the company’s own liability.
Who should consider buying this insurance?
Any director or officer may face a wide range of claims relating to their day-to-day management and oversight of the company. In addition, the company itself may also face management liability claims. In today's difficult environment, claims can arise from a variety of sources, including but not limited to:
- Securityholders (shareholders and bondholders) – worldwide security laws provide courses of action for shareholders to pursue directors, officers and the company when they have suffered a financial loss due to the alleged wrongdoing of a director and/or officer. Claims by securityholders may be direct or derivative, meaning the claims are brought by shareholders on behalf of the company itself
- Regulators / government bodies – in most jurisdictions, regulators are given the powers to investigate companies and their leaders. Investigations can be both civil or criminal, may lead to associated litigation and may result in significant fines and penalties
- Creditors – may allege mismanagement of the company and/or the violation of fiduciary duties that result in the devaluation of the company’s assets
- Liquidators – administrators may bring claims on behalf of the company for any breach of duty
- Competitors – any breach of competition laws could result in a competitor filing an action against directors and officers
- Employees – employees may look to hold senior executives accountable for employment-related wrongful acts
