DIRECTORS AND OFFICERS LIABILITY INSURANCE
This insurance covers the personal responsibility of the Board of Directors and officials of a company, for violation of their duties and may be created under common law, due to their lack of diligence and skill in the performance of their duties.
Management of today’s businesses is done by the officers and the members of the Board of Directors. Decisions are made every day to carry out the work of each business. Decisions are taken by members of the Board of Directors and the executives. If the decisions made during the exercise of their managerial duties cause financial damage to persons inside or outside the company, then they may be called upon to pay the personal damages incurred, perhaps from their personal assets.
Many times the members of the Boards of Directors and the Senior Managers consider that there is no risk, that third parties will personally turn against them for mistakes or omissions arising from the exercise of their duties, because they assume that in case someone turns against them, the company will bear the cost of their own defence and liability. However, arguments such as the above are not valid if we consider firstly, that the company, may not be able at that point in time to afford payment of this cost, and secondly, many executives and board members may hold a number of shares in the company. Therefore, their own financial situation is directly affected by the usually negligible expenditure that the company will incur to defend them and to settle claims.
Savvas Christoforou
among the examples of breach of duty may be the errors of judgment, for example allowing the company to continue trading while the work should have been stopped.
Situations where a Director may be liable to pay financial damages:
- Lack of skills.
- Judgement errors.
- Recruitment of incompetent employees.
- Sexual harassment.
- Inability to get the right protection measures against internet risks, resulting in the company being hacked.
- Inability to buy the right insurance resulting in the advent of a risk and damage to the company.
- Failure of supervision.
- Inaccuracy in statements of financial accounts.
- Lack of judgment and good faith.
- Mismanagement of funds.
- Misstatements in prospectuses.
- Allotment of shares.
- Unauthorized loans or investments.
- Failure to obtain competitive bids.
- Imprudent expansion resulting in a loss.
- Using inside information.
- Unwarranted dividend payments, salaries, or compensation.
- Misleading statements filed with the stock exchange.
- Misrepresentation in an acquisition agreement for the purchase of another company.
- Wrongful dismissal of an employee.
Who can claim against a director or an officer of a Company?
Shareholders
Usual reasons concern mismanagement, errors, oversights, thriftlessness,, breach of duty, financial misguidance, a drop in the share price, incorrect assessment of take-overs and mergers, company bankruptcy
Official Authorities
The strictest legal frame on Directors and Officers liability has led to more frequent and stricter “official investigations” by State or professional & commercial Regulatory Authorities.
Workers / Employees
Due to biased discrimination, illegal dismissal, breach of work regulations or contract terms, denial of salary raise and promotion or sexual harassment
Clients, Providers, Competitors
For illegal conduct, refusal to abide by agreements, use of illegal promotional methods of products/services, violation of copyright regulations, exploitation of “classified” commercial information.
Lenders and other third parties involved
For not adhering to agreements or violating agreements, falsification of financial records
Reasons why D&O Insurance is necessary
Protection of the Company members against:
1. The increased and stricter Regulatory / Supervising Authorities Audits with reference to corporate transparency and the behaviour of Executives.
2. The repercussions of the global financial crisis, resulting in bankruptcy, leading to lawsuits against Directors & Officers.
4. The expansive activities overseas (Global Economy).
5. The increase of mergers and take-overs.
To whom does D&O apply?
D & Ο Insurance applies to Directors and Executive Officers of the following Organisations and Businesses:
1. Private Companies
2. Companies listed in the Stock Exchange
3. Investment Companies
4. Financial Institutions
5. Non-Profit Organizations
6. Charity Institutions
7. International Companies
What does D&O Insurance cover?
D&O Insurance covers:
1. The expenses/ fees of external advisors for the investigation of the claim
2. The Legal Defence expenses
3. The Out-of-Court Settlement or
4. The Compensation of Court Decisions
Clarification
The information above may vary from Insurance Company to Insurance Company. Depending on the Insurance plan we will propose, we will give you all the relevant information required by the legislation so you can make your decision. Ask us today for an offer and, we will choose the most suitable package for your needs and budget.
