D&O Insurance Explained: How It Protects Your Leaders From Personal Liability

Directors and Officers Insurance, commonly referred to as D&O insurance for larger companies or Management Liability for small to medium enterprises, is key to protecting the directors and senior management against personal legal costs and damages awarded against them personally relating to actual or alleged acts in relation to managing the business. 

  

Here are some key points to help you understand Directors & Officers, Management Liability Insurance: 

  

1. Who Does the insurance cover?  D&O and Management Liability insurance covers all past, present and future directors, officers and senior staff (i.e. line managers or supervisors) against claims of actual or alleged wrongful acts, errors or omissions in the performance of their work-related duties. If the company will not or cannot afford to pay the directors' or managers' personal legal costs, as well as damages, then the insurance policy will pay these. 

  

If the company does pay the personal legal costs of a director or manager, plus any damages awarded, the insurance policy will reimburse the company (Company Reimbursement cover is part of the D&O policy).   

  

2. Who can benefit from D&O Management Liability insurance? 

Whilst directors, managers and senior staff may follow policies and procedures, accidents and mistakes can still happen. Employees can overlook or miss important safety rules, resulting in injuries or even death or money or goods can go missing or be stolen, resulting in financial collapse. 

  

Under workplace laws, directors and senior managers are personally responsible for injuries at the workplace. In some states and territories, these include criminal actions, with jail sentences and personal fines. Banks, shareholders and ASIC can take legal action to recover loans or shareholder funds. So, the directors and senior management, in addition to the company, will benefit from being protected against the financial costs of legal defence, investigations, and court-awarded damages. 

  

3. Types of Claims Covered: D&O insurance typically covers a wide range of claims, including: 

  • Breach of duty 

  • Mismanagement or negligence 

  • Violations of laws or regulations 

  • Financial misstatements 

  • Employment practices disputes 

  • Shareholder lawsuits 

  

D & O or management liability insurance can provide both the company and it’s directors and officers protection against the financial impact of actual or alleged complaints of defamation, breach of contract, discrimination, harassment, fraud, mismanagement and embezzlement etc.