What is directors and officers (D&O) liability insurance?
By Jim Vass
Directors and office holders (D&O) liability insurance protects the personal assets of directors and officers against legal costs for allegations of mismanagement, misconduct or legislative breaches.
The policy will cover legal fees and settlement costs. It’s an important component of risk management for any business, because directors and officers can be sued for any number of reasons, so D&O insurance includes cover for:
- Management Liability – which includes protection against fraud or breach of fiduciary duty; misappropriation of trade secrets; unfair competition and breach of confidentiality.
- Corporate Liability – which protects against allegations of fraud, being prosecuted by a regulatory authority and actions for breaches of the Corporations Act.
- Employment Practices Liability – which protects against allegations of bullying, sexual harassment, unfair dismissal and discrimination.
- Theft/Crime – by employees which may include theft of money and property.
- Statutory Liability – which protects against a breach of Occupational Health and Safety Act and other legislation.
These are all serious offences that are penalised by the law with potential penalties ranging from large fines to disqualification and potentially time behind bars. If there has been an allegation against a director or office holder, it’s imperative that your company is able to mount an adequate legal defence with a reputable and specialist legal team.
The cost of this can quickly escalate into the tens of thousands and delays in the legal process that are beyond your control can also be costly, which is why it really pays to have insurance in these circumstances.
It’s important to note that some intentional criminal acts are not covered under this particular insurance.
But for most businesses, and for many not-for-profit organisations, it is a worthwhile consideration.
Always shop around because all policies are a little different, and make sure you get professional advice to determine the right policy for your business.
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