Directors and Officers (D&O) insurance protects company directors and officers from claims alleging wrongful acts, mismanagement, or breaches of duty.
Without cover, directors risk personal financial loss from legal costs, settlements, or fines.
D&O insurance is often provided as part of a “Management Liability” Policy which can include other heads of cover such as:
Corporate Legal Liability – Protects the company itself against claims not covered under standard D&O policies.
Employment Practices Liability – Covers claims arising from employment disputes, including wrongful dismissal or discrimination.
Pension Trustee Liability – Protects trustees managing employee pension schemes against claims of mismanagement.
With increasing regulatory scrutiny and litigation risks, D&O insurance is essential for safeguarding personal and corporate assets.
What does “Claims Made” mean?
Directors and Officers insurance is “claims made,” covering claims made during the policy period, even for past actions/decisions. Cover must have been in force when the action/decision happened and when the claim is made. If the policy lapses, no cover applies for past actions/decisions. Continuous cover is essential, even after ceasing business or retiring.
Prior and Pending (P&P) vs Retroactive Date
The P&P date is a standard feature in Directors & Officers insurance. Its purpose is to exclude cover for prior or existing litigation. Essentially, it ensures that insurance doesn’t apply to known or current problems; it’s meant for future claims and proceedings. If you’re purchasing Directors & Officers cover for the first time, insurers rarely change the P&P date from the policy’s inception date.
If there’s a break in coverage, insurers would need a good explanation to avoid resetting the P&P date.
Backdating the P&P date allows new claims made during the current policy period to be covered if they arise from pre-existing issues or litigation that hasn’t yet developed into a claim applicable to the current policy.
However, it won’t pick up cover for claims noticed to a prior insurer or other claims made against the insured before the current policy period.
A retroactive date is different in that it is the earliest possible date for which you can claim under your D&O policy. It excludes claims arising from wrongful acts that occurred before this date.
When you first buy D&O coverage, the retroactive date is set.
Unlike the P&P date, the retroactive date doesn’t specifically exclude any actions, as long as you have no knowledge of a claim or circumstances that could result in a claim.
In summary, the P&P date prevents cover for existing litigation, while the retroactive date sets the earliest point for claims eligibility under the policy.
What is Corporate Legal Liability
Corporate legal liability (sometimes referred to as Entity Defence over) is an optional extension within Directors and Officers (D&O) insurance policy which provides cover to the company itself for claims arising from wrongful acts committed by its directors and officers in their official roles. It protects the company against legal costs, settlements, and judgments when it is named as a defendant in legal actions, such as securities litigation, employment practices claims, or regulatory investigations. Essentially, it safeguards the financial health of the corporation from liabilities linked to the decisions and actions of its leadership.
Employment Practice Liability
Employment Practices Liability Insurance (EPL) is an extension of Directors and Officers (D&O) insurance. While D&O insurance covers claims made by third parties against officers, EPL specifically addresses claims directly from employees. Typical sections of cover are:
Discrimination: EPL protects against claims related to discrimination based on race, gender, sexual orientation, religion, etc.
Sexual Harassment: If an employee files a lawsuit against another employee for harassment, EPL covers legal expenses.
Wrongful Termination: EPL addresses claims from employees who believe they were unfairly fired.
Failure to Promote: Refers to disputes over rightful compensation or promotion decisions.
Who does Directors and Officers insurance cover?
D&O insurance typically covers directors, officers, and executives of a company, including board members, managers, and other leadership roles.
What does Directors and Officers insurance typically cover?
D&O insurance covers legal defense costs, settlements, and judgments that may arise from lawsuits alleging wrongful acts such as mismanagement, breach of fiduciary duty, and errors in decision-making.
Are all types of wrongful acts covered under Directors and Officers insurance?
Policies may vary, but D&O insurance generally covers a broad range of wrongful acts, including decisions related to corporate governance, employment practices, financial reporting, and regulatory compliance.
What factors influence the cost of Directors and Officers insurance?
The cost of D&O insurance can be influenced by various factors, including the size and type of the company, its financial health, industry risks, claims history, and the limits and deductibles chosen in the policy.
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