Directors & Officers Liability Insurance

Platinum Commercial and General Insurance is able to arrange, place and manage all your Directors and Officers Liability Insurance (D&O Insurance) requirements. 

Directors and Officers Liability Insurance (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. A Wrongful Act is usually defined as an error, mis-statement, misleading statement, conduct, omission, neglect or breach of duty.

Directors & Officers Liability Insurance covers the successful defence of Directors and Officers of the company against such situations as :

• Alleged breaches of duty by one or more directors
• Misleading & deceptive conduct under the Trade Practices Act
• Successful defence of claims against Directors for insolvent trading
• Claims from an official investigations – for example ACCC investigating a complaint of anti-competitive behaviour

It protects the innocent but not the guilty. You cannot insure an illegal act.

D&O Liability Insurance FAQ’s

Platinum Commercial and General Insurance invites you to view below some Directors and Officers (D&O) Liability Insurance FAQ’s

1.  What is Directors’ & Officers’ (D&O) Insurance?
D&O is the short-form phrase for directors’ and officers’ liability insurance. The policy is designed to protect the personal assets of directors and officers by providing indemnity for any loss arising from a claim as a result of a ‘wrongful act’ committed by them in the course of performing their duties.

2.  What does a ‘wrongful act’ mean?
Typically a ‘wrongful act’ is defined to include an actual or alleged breach of duty, breach of trust, neglect, error, misstatement, misleading statement, omission, breach of warranty of authority or other act done or attempted by, or any other matter claimed against, a director and officer while acting in that capacity.

3.  What is the normal structure of a D&O policy? What is the meaning of Insuring Agreements A & B?
Generally, the operative clause of a D&O policy will be divided into two parts:

1. Insuring Agreement A - directors’ and /or officers’ liability provides cover to directors and officers in respect of claims made personally against them and for which the company cannot, under its indemnification provisions, provide indemnity to the individual.
2. Insuring Agreement B – company reimbursement enables the corporation to be reimbursed in situations where it has granted indemnity to a director or officer in respect to a claim.

4.  Who is covered under a D&O policy?
A D&O policy protects directors and officers of the corporation and all its subsidiaries. A D&O policy will cover any natural person who was or now is or may hereafter become a director, secretary, executive officer, or employee of the corporation, whether or not validly appointed or authorised to act in this position.

The definition is intentionally broad to ensure that it protects any individual exposed to potential litigation. The operation of the definition ensures that changes to the board do not need to be notified to enable coverage to be afforded. The policy will automatically respond to such changes. As long as the corporation continues to purchase a D&O policy, all retired and newly appointed directors will be automatically protected.

5.   Does the D&O policy cover the corporation?
Generally, a D&O policy will not indemnify the corporation for any claims against it. The intention of the policy is to indemnify the directors and officers for a wrongful act committed by them in their capacity as a director and officer. It is intended to protect the assets of the individuals, not the Corporation. The policy limit is intentionally made available for actions brought against individuals and will not be eroded by claims against the corporation (other than EPL matters described below). Insuring Agreement B will, however, reimburse the corporation where it has indemnified its directors and officers.

Typically, there is an optional extension under the policy, for the corporation to purchase protection for Employment Practices Liability (EPL) claims brought against the corporation.

6.   Why is it necessary to fill out a proposal form and to supply the financial details of the company?
The information provided in the proposal form is pertinent to the risk assessment of the corporation and its directors and officers. It enables the underwriter to gain an understanding of the individuals that Insurer will be protecting.

In addition to the information contained in the proposal form, an underwriter needs to understand the financial position of the corporation. Underwriters will request the audited consolidated financial statements for the past two financial periods. Unaudited financials, if accompanied by a signed director’s statement, will be accepted.

7. What are some common types of claims brought against directors and officers?
Directors are in a position of great power and responsibility and have been held to be increasingly accountable for the welfare and activities of the corporation as a result of that position. Sources of claims include:

• Breach of duty/neglect.
• Trade Practices/Fair Trading Legislation.
• Insolvent trading under Section 588G of the Corporations Act 2001(Cth).
• Mergers and acquisitions (misleading and deceptive conduct).
• Shareholder disputes.
• Employee claims (unfair dismissal, discrimination, sexual harassment).
• Unions/members (defamation).
• Regulatory authorities (ATO, ACCC,anti-discrimination boards, etc).
• Federal and State government offices.
• Breach of contract.

Management Liability Insurance

Private companies and their directors continue to face greater corporate governance and increasing regulatory surveillance of the management of their business activities.  Traditionally directors’ & officers’ policies have been written only to protect the personal interests and assets of individual directors and officers.  A Management Liability Insurance Policy has been designed for private companies and their directors and officers.  

A Management Liability Insurance Policy is intended to provide protection not only for the assets of the individual directors and officers but cover is also extended to the company for defined exposures. This is done by firstly broadening Professional Risks traditional D&O coverage and then incorporating it with a number of other insurance covers under the one policy.  

Pitfalls of Directors & Officers Liability Insurance Policies

The loss or “occurrence” must be made during the currency of the Directors & Officers Liability Insurance policy. This is why a Directors & Officers Liability Insurance policy must be kept current after discontinuing to be a Director of a company. The Directors & Officers Liability Insurance policy will not respond if this is not the case.

When purchasing Directors & Officers Liability Insurance you need an unlimited “retroactive clause”. This affords you the best cover.