Legal actions may be brought against companies for a variety of reasons, including allegations of financial mismanagement, alleged liability for injury/illness, and property damage. Therefore, board engagement with Directors & Officers (D&O) insurance is critical to protect your business leaders.
What is Directors and Officers insurance?
Directors and Officers (D&O) Liability insurance protects the personal assets of senior leaders in a company, if an employee, vendor, competitor, investor, client, or other party personally sues them for actual or alleged wrongful acts.
It’s key to understand that even if they are wrongfully accused, their assets are still at risk during a court proceeding. D&O insurance covers legal fees, settlements, and other associated costs depending on the policy you agree with your insurance broker.
If you are looking to secure venture capital or funding from investors, you will most likely need to have D&O coverage in place as a form of protection for the investors. Similarly, if you want to attract and retain qualified directors, D&O coverage will protect those who might otherwise be reluctant to put their personal assets at risk.
Five reasons D&O insurance is strongly recommended:
-
Protection for Directors and Officers
D&O insurance provides financial protection for individuals serving as Directors and Officers, as well as the organisation itself, in case they are personally sued for alleged wrongful acts in the course of their managerial duties.
-
Recruitment and retention
Knowing that there is liability protection in place can make it easier for you to attract and retain qualified individuals to serve on their boards or as officers. Without such protection, individuals may be reluctant to take on these roles due to personal liability concerns.
-
Risk mitigation
D&O insurance helps mitigate the financial risks associated with legal claims and lawsuits related to corporate decisions and actions. This can help protect the personal assets of Directors and Officers.
-
Investor and stakeholder confidence
Having D&O insurance can inspire confidence among investors, shareholders, and other stakeholders that your company is taking steps to manage potential liability risks and protect the interests of its leadership.
-
Legal and regulatory scrutiny
In today's business environment, Directors and Officers can face legal and regulatory scrutiny for a wide range of issues, including corporate governance, financial disclosures, and compliance with laws and regulations. D&O insurance can help you cover the costs of legal defence and potential settlements or judgments.
While D&O insurance is not a legal requirement, it is an important risk management tool for companies and organisations of all sizes, particularly those with publicly traded stock or those that deal with substantial financial transactions.
The specific needs and coverage requirements can vary based on the organisation's structure, industry, and individual circumstances, so it's advisable to consult with an insurance professional to determine the appropriate level of coverage.
Are you interested in learning more about Directors & Officer's insurance and Management Liability insurance? The SRIS team has put together a free downloadable guide:
