Top 3 Tips When Considering Directors' and Officers' Cover
Litigation and Dispute Resolution partner, Lucy Williams, discusses the top three things to keep in mind when considering directors' and officers' insurance cover for your company.
Directors and Officers insurance is a particularly important part of the suite of cover that a company puts in place – because it is there not only for the benefit of the company but also for the benefit of the individual directors and officers.
So - what should be front of mind when considering a company's Directors and Officers cover?
Firstly - what is the most likely claim or investigation that a company and its directors and officers will face? What is the policy there to protect the company and its directors/officers from? In general terms there are 2 main classes of potential liability for a company and its directors:
- Claims for damages - as is often in the media there has been a significant rise in class actions brought by shareholders commonly seeking hundreds of millions of dollars.
- Regulatory investigations – potentially resulting in criminal and civil fines and penalties.
Secondly, what does your D&O policy cover?
A good place to start is to review the insuring clauses and consider whether they pick up the risks that have been identified. But it is also important to look at what is not covered – this is where the company's and the directors uninsured risks will arise. Whist some exclusions (such as dishonesty) are non-negotiable there is scope for companies to seek to negotiate exclusions in their policies to fit a company's specific concerns.
Some common exclusions that can be negotiated include:
- exclusions for fines and penalties
- claims by Major Shareholders
- insolvency exclusions
The removal of such exclusions can be of considerable value to a company and its directors.
Thirdly, defence costs - are they covered and available?
This is often the most pressing issue when a claim or notification has been received by a company or director. It is important to review (and if appropriate to negotiate) the provisions governing the advancement of defence costs to ensure that there is certainty about:
- when defence cost will be advanced – ideally as soon as a claim is notified.
- who will have conduct of the defence.
In summary, it's important to review existing policies and negotiate new policies carefully and consider the amount and type of cover that a director/officer and company has and how it can be accessed.