D&O Insurance is designed to protect the personal assets of directors and officers of a corporation by providing indemnity for loss arising from a claim as a result of a 'wrongful act' committed by them in the course of performing their duties. Under a D&O policy, a "wrongful act" is usually defined as an error, mis-statement, misleading statement, conduct, omission, neglect or breach of duty.
In simple terms, D&O Insurance covers the people involved in managing and running an organisation. In the policy this may be stated as "any past, present or future director, secretary, officer, employee of the company or any trustee, or any natural person who by virtue of any applicable legislation or law is deemed to be a director or officer of the company".
Exactly who is covered will vary between insurers and therefore each policy wording needs to be verified for its adequacy in this respect. It is important to note however that the insurance covers the individuals, not the company and so if a claim is made against the corporation itself then no cover applies.
The types of claims a Director of Officer could face are:
- Alleged breach of Directors' or Officers' duties
- Alleged breach of fiduciary duty
- Breach of the Trade Practices Act (misleading and deceptive conduct), and other statutes
- Claims from an official investigations for example ACCC investigating a complaint of anti-competitive behaviour
- OH&S proceedings
- Infringement of intellectual property rights
- Breach of confidentiality
- Allegations of illegal or improper conduct
- Insolvent trading
Where do claims come from?
Directors' and Officers' of a corporation face both personal and corporate liabilities from numerous stakeholders including the following:
- Liquidators / Administrators
What is not covered?
Every insurer's policy wording is different and so each wording must be considered on its own, however in broad terms you can expect to see exclusions such as:
- Dishonesty, Criminal Intent, Improper Gain (Profit or Advantage) Insider Trading;
- Fines, Penalties or Punitive Damages;
- Insured v- Insured (This exclusion essentially prevents a company from suing or orchestrating a suit against its directors' and officers' in order to collect insurance proceeds.);
- Major Shareholders (i.e. more that 15% of voting rights);
- Pollution (Except as provided for by Pollution Defence Costs)
- Nuclear, War & Terrorism;
- Professional Liability (Separate Professional Indemnity Insurance required)
- Bodily Injury or Property Damage (Public & Products Liability insurance required);
- Known prior claims or circumstances;
- Contractual liability.