What should a Directors and Officers policy cover?
Directors
A policy should cover the directors of the parent company and any subsidiary
companies. They should also be covered when sitting at the request of their
employer on any other boards.
Directors of any company purchased or sold should be protected but care should
be taken about automatically including Joint Ventures.
Joint Ventures?
Before including joint ventures companies should consider the consequences and what they are trying to achieve. A better solution may be for both sponsors of the joint venture to share the cost of a policy specific to the joint venture. Otherwise there is a real danger of the main company boards protection will being diluted.
Officers
The policy should have a very wide wording and it is better if an OFFICER is not defined. This provides maximum protection to the employees of the company.
Insured V Insured
There are times when allegations are made between directors. New corporate governance protocols for listed companies requires the board to asses its performance and that of each director. It is easy to see that disputes could occur and as a consequence this is a cover companies should try to have included.
Entity
A company has a legal right to defend itself. The objective of a Directors and Officers policy is to defend the DIRECTORS and not the company. Sometimes particularly for SMEs' it is hard to distinguish between the ownership and the directorial duty. Some policies will allow the entity to be covered for an additional cost although a commercial legal expenses policy could provide similar cover. Some other policies will pick up the entity cover if it and the director are jointly accountable. For SME's this is the type of policy we would recommend.
Legal Representation
Directors may be required to represent the company if it is under investigation or when attending inquiries or court. Under these circumstances the directors will want to take legal advice to protect their own position. Legal representation costs are an important element of cover for a Directors and Officers policy. Not all policies include the cover automatically and some offer lower limits of indemnity. Since this is one of the most common types of claim we believe this cover should represent the full limit of indemnity.
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