Insurance covers offer protection against a known risk due to the unpredictability of future events. Professional insurance covers protect professionals and individuals from a variety of risks related to their work. The director & officer liability insurance cover is normally payable to officers and directors of a certain organization as a means of indemnifying against certain losses. The cover protects the insured person from losses that could emanate from legal suits, administrative, legal or civil, that may be brought about due to alleged wrong deeds in the individuals’ capacity as an officer or a director. Such suits could be against the organization that the officers and directors are working for or to them individually. The cover is sometimes extended to cover the individuals against criminal and civil actions they are charged with. It is closely associated with management insurance liability and both covers could be offered together in a comprehensive insurance policy.
The answer to the question “what is d&o insurance” can be evident in public companies, normally those that trade in national security exchanges with their securities. Such companies are the highest practitioners of the Directors officers insurance, and the policy cover includes three main insurance clauses. The first clause is an indemnifying clause; the second is a non-in demni fying clause while the third is entity securities coverage. Other covers have a fourth competitive clause which covers for investigation costs. The first clause is used to cover the officer and directors when they are not indemnified by the company as a result of the company financial status or a state law. This clause however does not cover instances where the company has refused to pay legal losses of an officer, or where there is a court issue to prevent officer indemnification. The second clause covers cases where the officer or director is indemnified by the corporation, and also covers instances where indemnification has been prevented by a bankruptcy court order. The third clause covers the organization against claims related to securities that are charged against it. The securities only coverage is however explicitly used by public companies and large organizations since small entities take up the entity coverage insurance policy.
The basis of d&o insurance covers lies in the fact that their decisions lead to corporate behavior. Their decision could be based on poor judgment of a situation or even result from prevailing circumstances at a certain period of time. Any decision is right according to professional directors, but they could make decisions which may lead to shareholder discontentment causing legal suits.