Directors and officers insurance (D&O insurance) is designed to protect the directors and officers of a private and/or public company for alleged wrongful acts including claims of mismanagement, for example breach of fiduciary duties, of the company. These legal actions or investigations of wrongdoings are typically brought by shareholders, employees, regulators, creditors, competitors, liquidators and others. D&O Insurance can also be extended to cover the entity for security, employment practices liability and statutory liability to protect the balance sheet of the company.
Statutory Liability insurance is protection for the Directors & Officers and the company (when applicable) for a claim alleging a statutory breach. Some examples of the types of statutory investigations and claims are Workplace Health & Safety, Employment Practices Laws, Environmental Protection Authority, Spam and Privacy Laws. Statutory Liability is typically included for the Directors & Officers but not the entity on Directors’ & Officers’ policies. Statutory Liability is an option that can be added to most D&O policies for an additional cost or can be purchased as a standalone policy.
Employment Practices Liability (also known as EPL) insurance is protection for the Directors and Officers and the company (when applicable) for a claim alleging an Employment Practices Breach. Employment Practices Liability is an additional inclusion for the Directors and Officers but generally not for the entity. Examples of matters which fall under the category of EPL are wrongful dismissal, sexual harassment, discrimination, bullying, whistleblower actions. Entity Employment Practices Liability is an option that can be added to most Directors and Officers policies for an additional cost.
As outlined above, Side A coverage is protection specifically for the Directors & Officers. Depending on how a D&O insurance program is structured, Directors & Officers may be left exposed due to sharing the limit with the company (Side C). An option to further protect the Directors & Officers is to purchase an Excess Side A limit or policy. Some Directors & Officers policies include a small additional limit of Side A in excess of the policy limit if the Side A limit is fully exhausted. There are also insurers that are now offering Excess Side A policies as a stand-alone policy to sit in excess of the master policy.
Prospectus Liability Insurance is a type of coverage that can be purchased on a stand-alone basis to respond to claims alleging a breach of securities law in connection with a specific prospectus. For more information on Prospectus Liability, please see our blog post @ Prospectus Liability Insurance
Directors and Officers policies have a Change in Control provision that states that upon a Change in Control the policy will only respond to wrongful acts or conduct that has occurred prior to the effective date. To pick up the exposure post Change in Control date, the insured should purchase a Run-Off policy to cover the Directors and Officers exposure from that date forward. The Run-Off policy is usually purchased for 7 years to match the statute of limitations in Australia.
The D&O insurance market is becoming rapidly challenging.
Premiums and deductibles have been increasing, sometimes dramatically, and some insurers being more selective about who they insure.
Watch this short video from KBI’s D&O Account Manager, Dawn James, on what strategies you can do to mitigate the negative consequences and best prepare for your next renewal.
Directors and Officers exclusions can be categorised into two types—Standard Exclusions that are built into the policy wording and Customised Exclusions that are endorsed onto the policy by insurers.
This exclusion states that any future offering of securities is excluded. There can be amendments to this exclusion to include a threshold and jurisdiction limitation. This is important for the managers of the D&O insurance, as they must notify the broker/insurer to ensure future capital raisings are underwritten and can be covered.
This exclusion has a threshold for major shareholders (i.e. 10/15/20%) and the policy will not cover a claim brought by a major shareholder against the Directors & Officers. This exclusion usually has a requirement that the major shareholder has a holding above a threshold together with a board position to trigger the exclusion.
This excludes any wrongful act committed or alleged to have been committed prior to the inception of the policy. This is a way for insurers to exclude past acts and make the policy only forward looking.
This exclusion removes any coverage for claims arising out of insolvency. This exclusion can typically be removed if the company shows they are in a good financial position and can internally fund the company’s operations for 12-18+ months.
This excludes claims connected with nationalisation of a Company or any part of a Company’s business. It will also exclude the seizure, reversion, appropriation of a company’s assets by a governing body.
This excludes any claim which alleges the mismanagement of the company’s insurance program.
This exclusion removes coverage in connection to the performance of or failure to perform professional services.
This excludes any claim or allegation due to pollution or environmental event.
This exclusion is part of every Directors and Officers policy and excludes dishonest or fraudulent acts committed by an insured. It can extend to exclude intentional violation or breach of law/regulation and unfair profit or gain to which an insured has no legal entitlement. It is worth noting that most policies defend the Directors & Officers until final adjudication and policies typically include severability clauses which isolate the Wrongful Act or conduct by one insured so that it is not imputed to other insureds.
The policy will not respond to a a claim for Bodily Injury & Property Damage claim as this exposure is typically covered by a Public Liability policy. This exclusion usually has a write back (gives coverage back) for Defence Costs, Employment Related Wrongful Acts and Security Claims.
Prior & Pending Exclusion excludes cover for any pending or prior litigation involving the Company that has begun before the Prior & Pending date of the policy.
There are many variations to this exclusion, but the main purpose is to exclude cover for dispute between insureds / the company and an insured in the USA.
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Public Companies have most of their information available to the public, but we recommend the following for our quoting process:
The KBI team has placed Directors and Officers Liability Insurance for over 300 public companies in Australia, Asia and North America. We have also worked with dozens of private and not-for-profit organisations.Our offering is tailored specifically for purchasing and managing Directors and Officers Liability Insurance and includes the following services.
so the insurers have the necessary information to properly underwrite and quote.
we help clients make an informed decision by comparing the quotes (including plain language) so clients know what they are buying
we can assist clients with providing additional information to help decide what is an appropriate limit on their Directors and Officers Insurance
can improve the quoting process as insurers become more familiar with the company and the key executives
we focus on Directors and Officers insurance so we continually provide updates to our clients and contacts through our D&O blog and newsletter
is crucial for Directors and Officers policy holders. Our D&O team not only has experience managing small and large D&O Claims, but we are a unique make up of senior brokers, lawyers and past ASX advisors, giving us a robust understanding of the process
I first contacted KBI to seek their assistance in organising D&O insurance for our small-cap ASX listed company. They were supremely responsive, very informative (on what can be a complicated and difficult to compare product) and proposed a fit-for -purpose solution at great value. Their proposal was clear and coherent and gave me great confidence in tabling for Board review and approval. We will be moving all of our insurance management to KBI. Highly recommended.
Travis is expert at finding excellent insurance value solutions for his clients. He caters to small and medium-sized businesses who need responsive advice and service and are working within a budget. Particularly, if you're experiencing the big insurance company hard sell followed by unresponsive service and cookie-cutter products, I think you'll be pleasantly surprised by what Travis will do for you.
Travis does excellent work in designing insurance that fits diverse clients and diverse needs. We have used their insurance for three years and it has provided solid coverage.
Travis is my “go to” mining expert in the insurance industry. I have contacted Travis a number of times to provide quotes to public and private mining companies with coverage options ranging from straight D&O, through to a full suite of coverages including active mine and overseas kidnap coverage. Travis is well versed in risk management and has assisted in evaluating the coverage options, providing cost comparative analysis in simple terms that are tailored to the mining sector.
Travis and his group has been providing insurance to our junior mining companies for several years and he has provided us with outstanding service over that time. He is extremely knowledgeable in his field, is very personable and I would not hesitate to recommend him and his team for business or personal insurance needs.
"Travis was always good at being straight up with answers and getting information for us and presenting it in a way that was clear and concise."
"The KBI Directors' & Officers' team are my go to insurance brokers for publicly traded companies that I am involved with. They are one of the few brokerages that passionately understand the junior public company space. The explanation and comparison they provide makes it easy for our key executives to make an informed decision. I regularly recommend their services to other public companies in need of Directors' & Officers' insurance and other operational insurances."
"In a world of increasing complexity and risk, Travis has a rare ability to distil decisions down to the factors which are most important and most relevant. Over the past 8 years of working closely with him, I have learned to trust his experience and instinct as it relates to a variety of insurance products. I enthusiastically endorse Travis and his work.
"Through my many dealings with Travis and the KBI team, I have seen firsthand their high level of service and expertise. They have proven themselves to be leaders in the field of Directors’ & Officers’ Insurance and I regularly refer our publicly traded clients to them for advice and the appropriate insurances."
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