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Directors & Officers Insurance
What is Directors and Officers Insurance?
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.
What does Directors and Officers Insurance Cover?
D&O policies are typically structured with three available insuring clauses – Side A, B & C
Additional Coverage and Policy Options
Statutory Liability
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
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.
Excess Side A
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
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 Insurance Exclusions
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.
Customised Exclusions
Future Offering Exclusion
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.
Major Shareholder Exclusion
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.
Retroactive Date 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.
Insolvency Exclusion
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.
Political Risks Exclusion
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.
Failure to Maintain Insurance
This excludes any claim which alleges the mismanagement of the company’s insurance program.
Professional Services Exclusion
This exclusion removes coverage in connection to the performance of or failure to perform professional services.
Pollution/Environmental Exclusion
This excludes any claim or allegation due to pollution or environmental event.
Standard Exclusions
Personal Conduct Exclusion
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.
Bodily Injury/Property Damage
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
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.
Insured Versus Insured for USA Claims
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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Quote Requirements for Directors and Officers Insurance
Public Companies have most of their information available to the public, but we recommend the following for our quoting process:
Please complete this Proposal Form and return to our brokers below to arrange a Directors and Officers Insurance quote. (Download Here)
Why work with KBI?
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.
1. Assistance with the submission process
so the insurers have the necessary information to properly underwrite and quote.
2. Quote comparison
we help clients make an informed decision by comparing the quotes (including plain language) so clients know what they are buying
3. Limit analysis
we can assist clients with providing additional information to help decide what is an appropriate limit on their Directors and Officers Insurance
4. Insurer meetings
can improve the quoting process as insurers become more familiar with the company and the key executives
5. Updated information
we focus on Directors and Officers insurance so we continually provide updates to our clients and contacts through our D&O blog and newsletter
6. Claims management
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
Directors and Officers Insurance Team
Directors and Officers Insurance Blogs
Are You Protected as a Director?
Many responsibilities come with being a director, and there are harsh consequences if you don’t fulfil them. Know when protection and indemnification are possible and how to protect yourself.
Setting the Limit for your D&O Insurance
With Directors & Officers Insurance premiums increasing significantly and a number of insurers withdrawing from the D&O market we are regularly asked by Boards what appropriate D&O coverage ie the limit of indemnity should be?
D&O Insurance: Glossary of Terms
D&O policies often include technical terminology and although there is no substitute for quality advice from a specialist D&O broker, we’ve summarised some general terms insurers often use below.
Read More Directors and Officers Insurance Articles Here
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Directors and Officers Insurance Testimonials
Directors and Officers Insurers
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