Common Exclusions That Your D&O Insurance Will Not Cover

The director and officer (D&O) liability insurance policy covers directors and officers of profit and non-profit organisations and privately held businesses. The insurance is intended to protect officers and directors from personal losses in case they are sued because of serving as a director or officer to a company. It may also cover legal fee with other aspects of damages as a result of the suit.

D&O insurance is paid to a director or an officer of a company for reimbursement or losses due to a legal fee, in cases of legal action taken against them. It may extend from criminal investigation to trial defence costs.

D&O insurance policy may vary for every organisation depending upon the risk it faces in their work. Organisations prefer buying the policy over individuals with risk calculation.

Why is D&O Insurance Policy critical?

The policy is useful whenever there is an appointment of a new board of directors in the company. It safeguards the company’s previous, present and upcoming directors from any personal damage arising due to wrongful decisions.

A few situations where the D&O insurance policy is essential are:

1. For compliance with legal necessities and accounting irregularities
2. As a step towards good corporate governance
3. In case of failure to comply with laws of the management committee
4. In cases of misuse of an organisation’s funds
5. In cases of mergers and acquisitions

Who is covered under D&O Insurance Policy?

Individuals covered under this policy are:

1. Officers and Directors of a company
2. Non-executive or independent directors 
3. The risk manager of the organisation
4. Secretary of the company

While there are many perks of D&O Insurance policy, some standard exclusions cannot be ignored.

Common exclusions of the policy are:

1. Deliberate dishonesty: In cases where directors opting for unfair means to crack a deal such as allowing amendments in financial figures and similar
2. A fraudulent act or wilful misconduct: If there is any intentional misconduct to get through an agreement and to gain personal profits
3. Company fund misuse: If any illegal remunerations are performed at managerial level or above, the policy is not liable to cover the losses
4. Prior claims: If there is any prior litigation or claim, insurance is not responsible for covering them
5. Claims covered under other policy: Claims like bodily injury or property damage and similar are not covered under D&O Insurance policy. Claims covered under other policies are excluded.
6. Standard exclusion in insurance policies: Standard exclusions include war and radioactivity claims, criminal activity claims, theft of intellectual property, and similar. Corporate manslaughter is included in policy terms.
7. Professional omissions and errors: If such errors occur because of negligence or deliberate decisions

The policy will only cover up to a sum assured if there are any legal expenses because of specific reasons. As a director or officer, it becomes your moral duty to avoid any wrongful acts or wilful decisions to make personal gains. It will undertake only those actions which are covered under the policy in cases of personal liability and where corporate laws make you liable.

Benefits of D&O Insurance Policy

1. The policy covers the scenarios where organisational losses occur due to wrong decisions of the board.
2. Indemnity is provided to the legal representative of the officer or director in cases of bankruptcy or insolvency.
3. The legal expenses, as a result of prosecutions of an officer or director, are borne by the insurer.
4. Individuals insured under the policy are covered for cases against sexual harassment, discriminatory acts, wrongful termination, and such similar acts causing losses to the company.
5. Beside ensuring cover to directors and officers, it also provides a cover to the company.

These are just some among several benefits which help every organisation, be it small or large. Analysing the factors above, it is evident that D&O Insurance Policy is of importance to any organisation. It is very likely businesses will tend to incur losses in case of claims in many  situations, and the liability insurance above will help you against such problems.