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Marathon Help Desk | Directors & Officers Liability – Get Insured
It goes without saying that when your main asset is your people; your main risk will most likely come from people as well.
In recent years, this reality has become one of the trickiest aspects of insurance. It is further confounded with the emerging trend of the courts awarding millions in damages, spreading just about everywhere. This has resulted in the skyrocketing of premium costs for liability insurance.
Around the globe, fewer insurers are offering policies and specialty risks are getting harder and harder to cover. It is simple commonsense for you to protect yourself and your employees in cases where negligence, or an act or omission on your part exposes the company to claims for remedies from third parties.
The prevailing trend suggests that Governments and publicly traded Boards are more vulnerable to lawsuits since their ability to pay is perceived to be much higher than that of smaller entities.
In fact Phil Norton – Senior Managing Director of the Management Liability Practice at Arthur J. Gallagher & Co., who is regarded as one of the world’s leading authorities in his field, posits that ‘As we entered 2020, the D&O market had been hardening since the spring of 2019, with some acceleration of price increases, many cuts in capacity on the more difficult risks, and underwriters pushing for higher retentions across several classes of businesses.”
The unquestionable fact is that all board members are personally exposed and are at risk of unexpected legal claims with consequential financial pain. Indeed, it could become a matter for judicial interpretation whether or not a publicly traded company that does not provide this basic protection had recklessly exposed itself to charges of negligence.
Companies need to carry two basic insurances to protect their Directors and Officers.
The two insurances are
The overview of both types of insurance coverage provided below is not intended to be exhaustive – you should always rely on your broker for advice tailored to your special circumstances. However, since D&O insurance is the policy most generally overlooked by companies, we will give it some focus.
Directors & Officers Liability provide financial protection for the directors and officers of your company in the event they are sued in conjunction with the performance of their duties as they relate to the company.
It is important to highlight that the main function of D&O insurance is to protect the personal assets of the directors, officers and employees of a company (the “Insured Persons”) against claims brought by parties that have suffered a loss because of a wrongful act of an Insured Person.
A D&O wrongful act would be an act committed in the individual’s duty as a director rather than in their professional capacity i.e. duty as a manager of the company.
Professional Indemnity Insurance (E&O insurance) protects your company from claims if your client holds you responsible for errors, or the failure of your work to perform as promised in your contract.
Coverage includes legal defense costs – no matter how baseless the allegations. It will pay for any resulting judgments against you, including court costs, up to the coverage limits on your policy.
Some examples of D&O losses include the following:
Since the directors manage the assets and control the company’s day-to-day affairs, they act as trustees of the company’s assets, and because they determine the activities of the company they have the legal obligation to ensure that their actions are bona fide and for the benefit of the company.
Directors are liable personally to pay losses suffered by the company following an act which is either illegal, outside of the company’s authority, beyond their power, or which evidences insufficient skill and care in managing the company’s affairs.
As such they are open to claims not only from the company itself, but also shareholders, employees, governmental or regulatory authorities, creditors, clients, competitors, the official receiver or the company liquidator.
It is highly recommended that the wording of the policy protects you from claims brought anywhere in the world, while firmly abiding by Jamaican regulations.
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