D&O Insurance Explained | Towergate

Insurance for administrators and directors (d&o) offers civil liability coverage for company administrators to protect them from claims that may arise from decisions and actions taken within the scope of their usual duties.

Key personnel are likely to have more responsibilities and higher risk, and compensation claims could be filed against them by staff, clients, investors or regulators.

Reading: What does director and officer insurance cover

Any allegation of wrongdoing must be investigated and defended, and this can cost a significant amount even if the case does not make it to court. This means that the personal finances of directors and officers are at risk, so it is essential that companies provide protection through directors and officers liability (d&o) insurance.

d&o insurance may also cover the legal costs of defending a case.

what does d&o insurance cover?

The primary purpose of a D&O policy is to provide managers with financial protection against the consequences of actual or perceived “wrongdoing” when acting within the scope of their managerial duties. the d&o policy will pay defense costs and financial losses. In addition, many D&O policy extensions also cover costs to managers incurred in administrative and criminal proceedings or in the course of investigations by regulators or criminal prosecutors.

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These extensions of coverage are gaining more and more importance among company managers. In this way, managers receive comprehensive and integrated coverage that ensures reliable, coherent and structured legal defense.

There are different risks in different markets. The United States is by far the largest d&o market in the world with premium volume of around $6 billion, and there the most frequent source of claims are claims related to labor or human resources issues, such as discrimination, sexual harassment or wrongful termination. Between 2000 and 2008, more than 40% of damage claims in the United States were employment-related claims. in most cases, the managers did not act themselves; they simply did not enforce the anti-discrimination and anti-harassment rules of employee conduct.

While these are the most common claims in the US market, they are not the most expensive. the severity of securities claims is much higher. Insurers are watching closely if shareholder activism and class action lawsuits are on the rise, but the frequency of these claims appears to have stabilized at its current high level. In other markets around the world, shareholder demands are on the rise along with the general trend of increasing shareholder rights.

who is covered by directors and officers insurance?

All current, future and past directors and officers of a company and its subsidiaries are covered by an unemployment policy, which may also include non-executive directors. In very specific cases such as securities claims, the policy can even be extended to cover claims against the company itself. coverage is generally contracted and paid for by the company. Depending on the respective local law and policy, legislators may or may not consider this an “in-kind benefit” for the people it covers.

the peace of mind of directors and officers liability insurance

directors and officers insurance covers the costs associated with defending an accusation of wrongdoing. This means that it eliminates the financial risks faced by directors and officers, providing them with protection in the event that a complaint or claim is filed against them. Considering that even simple investigations can cost thousands, if not hundreds of thousands, of pounds, purchasing managers and officers make financial sense.

why are people so vulnerable?

  • employees know their labor rights and are increasingly likely to sue
  • legal responsibility moves away from companies and towards personal responsibility
  • regulators are now more proactive in investigating companies
  • what is an illegal act?

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    This could be a breach of trust, breach of duty, negligence, error, misleading statement or tortious dealing, committed or attempted by a director or officer while acting in this capacity on behalf of the company.

    directors and officers insurance and covid-19

    Given the unique and complex problems that COVID-19 has caused businesses, inevitably some well-intentioned decisions they have made during the pandemic could lead to litigation. A key priority will be to protect staff and provide a safe working environment that meets health and safety standards.

    An untested but key question is whether employees can require employees to get vaccinated. there will be a legal discussion around article 8 of the European convention on human rights (which protects the right to private and family life) against the exclusion clause of this law, where it can be repealed “in the interest of national security, the public safety or the economic well-being of the country.”

    However, if such a decision to vaccinate employees before they are allowed to return to the office, or even a decision not to do so, could result in litigation against senior staff. This means that directors and officers insurance has become even more important to protect your organization.

    towergate d&o insurance

    Our directors and officers insurance covers your directors and officers against claims brought against them, and is designed to help you navigate the stringent legislative and regulatory world in which we work. our policy grows and develops with your business, providing the best defense if the worst happens. See our d&o insurance website for more details, or call 0330 123 5741 to speak to a specialist adviser.

    about the author

    mike stephens is a respected senior industry professional and member of the chartered insurance institute (cii) with over 40 years of varied experience in the commercial insurance industry as a director, underwriter, and operational improvement manager.

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