Directors’ & Officers’ Liability insurance indemnifies both directors and officers and provides cover for:
- investigative costs;
- defence costs; and/or
- costs to appear at inquiries or investigations.
The underwriter undertakes to indemnify the insured for any claim arising out of a wrongful act committed by the individual in their capacity as a director or officer of the corporation. The claim must first be made against the director or officer during the policy period, and notified to the underwriter during the indemnity period. This reporting requirement is the same as that used under professional indemnity policies.
A claim means:
- Any writ, summons, application or other originating legal or arbitral proceedings, cross claim or counter-claim issued against or served upon any director or officer alleging any wrongful act; or
- Any written or verbal demand alleging any wrongful act communicated to any director or officer under any circumstance and by whatever means; or
- Any fact, situation or circumstance which might, in the opinion of a reasonable director or officer, give rise to the above, which first comes to the attention of the director or officer and is notified during the indemnity period.
The term ‘Wrongful Act’ means any actual or alleged breach of duty, breach of trust, neglect, error mis-statement, misleading statement, omission, breach of warranty of authority or other act done or wrongfully attempted by a director or officer while acting in either an individual or collective capacity.
The cover is written in two parts, a company reimbursement policy on legal expenses, and a personal indemnity for the Directors themselves on damages plus legal expenses. This is done to comply with Australian legislation, which forbids companies from indemnifying their directors. The overall premium is generally split.
A “Run Off” cover is often provided where, should the insurer refuse to renew the policy at any stage, the insured has the right (where exercised within 30 days of the non-renewal) for the cover to be continued on a run-off basis for a further period of 12 months, subject to an additional premium. The cover provided is in respect of any claims made during this 12-month run-off period so long as the incident which gave rise to the claim occurred during the period in which the policy was in force. This run-off cover does not respond to any claims relating to incidents which occurred during the run-off period.
Some policies offer an extension for Legal Defence for Criminal Prosecution which provides cover for defence costs incurred in the legal representation of any director or officer contesting any allegation (whether criminal or otherwise) contained in any claim made against them jointly or separately provided:
- The insurer agrees who is to provide that legal representation and consent to incurring defence costs;
- There must be a claim under the policy so that if an action were brought involving criminal charges alone and there being no civil action, the policy would not respond; and
- It is purely at the underwriter’s discretion as to whether defence will be given for any criminal costs.
Principal exclusions are:
- Willful, dishonest or fraudulent acts;
- Fines or penalties;
- Known circumstances which have not been declared;
- Losses covered under public and product liability policies; and
- Jurisdictional restrictions.