What is Directors & Officers Insurance? Why your business will need it, and how we can help.
DIRECTORS & OFFICERS INSURANCE
What is Directors and Officers Insurance?
Directors and officers liability Insurance (often called D&O) is liability insurance payable to the directors and officers of a company, or to the organisation(s) itself, as indemnification (reimbursement) for losses or advancement of defence costs in the event an insured suffers such a loss as a result of a legal action brought for alleged wrongful acts in their capacity as directors and officers. Such coverage can extend to defence costs arising out of criminal and regulatory investigations/trials as well.
Why do companies purchase Directors and Officers Insurance?
Quite simply: Directors and Officers can make mistakes – and more often than not will be personally legally liable for those mistakes. They walk a fine line as they steer their company, having to make difficult and often complex decisions.
These decisions can have huge ramifications, but must be made sometimes on the back of very limited information. At Hatton & Berkeley we are seeing many of our clients operating in a multinational environment, with trading partners, operations and investors located in various jurisdictions.
This means that the governing bodies, regulators, auditors, corporate governance and compliance landscape in each of those territories will vary, meaning directors and officers have to try to stay ahead of all this in addition to the markets of their core business. The Directors and Officers become targets as they try to handle an increasingly complex operating environment.
No amount of experience and due diligence can completely shield the company and its Directors and Officers from potential costly litigation when managers make decisions that subsequently cause losses to the company and / or third parties.
The Directors and Officers can be held personally liable for those losses, so the company needs to be able to transfer the risk so that its leaders have confidence to make decisions. The risk of those decisions becomes transparent and manageable through the purchase of D&O insurance.
In the event of a claim, D&O cover provides the Directors and Officers with an element of financial security.