D&O Insurance

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If you're a director or senior officer make sure you're protected. Speak with an adviser about getting D&O insurance

Are you a director or officer? As part of your regular duties, you’re required to make a range of important decisions and fulfil many critical duties. But sometimes the decisions you make have the potential to leave you open to legal action, which can result in expensive legal costs and potential compensation.

Directors and Officers Liability Insurance (D&O insurance) is designed to cover your personal liability as a company director, as well as reimbursing your company if it pays a claim on your behalf.

Speak with an adviser today about D&O Insurance

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What is D&O insurance and why is it important?

D&O insurance offers crucial protection in an increasingly complex business world.

Company directors and officers face intense public scrutiny and must also strive to meet a wide range of legal and corporate governance requirements. However, no matter how fastidiously you perform your duties, mistakes can be made and lead to personal liability claims.

When would you need D&O insurance?

You inadvertently neglect to disclose relevant information to your shareholders, regulatory bodies, employees or competing businesses that leads to a claim.

Directors and officers liability insurance is designed to offer protection for the company as a whole, for individual managers and directors and for other important company personnel.

What does it cover?

D&O insurance covers loss from personal liability claims made against insured directors and officers of a company. Cover is provided for wrongful acts such as a breach of duty, breach of trust, error, omission, misstatement or neglect. This includes:

  • Claims from shareholders alleging inaccuracy in financial statements
  • Claims from regulatory authorities, for example claims from the Australian Competition and Consumer Commission that you have breached the Trade Practices Act
  • Claims from employees about issues such as unfair dismissal and sexual harassment
  • Claims from competitors, for example for copyright breaches or defamation
  • Claims from the ATO regarding unpaid tax

This type of insurance provides cover for any damages, fines and penalties imposed upon a director or officer, as well as cover for the cost of funding their own legal defence (if required).

However, in cases where a company pays for your legal defence or any damages that must be paid, D&O insurance also offers company reimbursement cover.

Other benefits of D&O insurance include:

  • Cover for defence costs incurred for claims regarding occupational health and safety breaches
  • Attendance at official investigations and inquiries
  • Securities claims cover
  • Joint venture cover

What isn’t covered?

While cover differs between insurers, there are a few general exclusions that apply to most D&O insurance policies.

  • Intentional misconduct of a director or officer. If a claim is brought against a director or officer that is the subject of a prohibition in section 199B(1) of the Corporations Act (2001), or that results from any deliberately fraudulent or dishonest act or omission, it will not be covered. Similarly, wilful violations of law and wilful breaches of duty are not covered.
    However, in cases like those above, cover is available for innocent directors and officers who are named as co-defendants but were not involved in any illegal activity.
  • Bodily injury or property damage. Claims for bodily injury or property damage are not covered by D&O insurance. This includes the illness, disease or death of any person, as well as any psychiatric, psychological or mental illness.
    Any loss related to prior claims and circumstances is also excluded from cover, while claims brought in the United States are also typically not covered.
  • Claims recoverable from another source. If your claim can be covered by another form of business insurance such as professional indemnity insurance, you are not able to claim from D&O insurance.

What is the normal structure of a policy?

D&O insurance policies are normally structured in two parts: side A and side B.

  • Side A. Side A covers the directors or officers of a company for claims made against them personally and for indemnity costs the company cannot provide cover for, either due to its indemnification provisions or because it is unable to do so under the Corporations Act.
  • Side B. Side B is the company reimbursement section of a policy, providing cover for the reimbursement of a company when it pays for your legal defence or for any damages or costs awarded.

What does wrongful act mean?

A wrongful act is a breach of duty, breach of trust, neglect, error, misstatement, misleading statement, omission, breach of warranty of authority or other act.

The act needs to be done or attempted by a director or officer while performing their professional duty, and alleged instances of any of these acts are also included in the definition.


Common claims

Some of the common claims for which a D&O insurance policy can provide cover include:

  • Claims for breach of trust or breach of duty
  • Claims regarding misleading and deceptive conduct during a merger or acquisition
  • Claims from unions and their members for defamation
  • Claims regarding breaches of the Trade Practices Act
  • Claims relating to a company trading while financially insolvent under Section 588G of the Corporations Act (2001)
  • Disputes and complaints from shareholders
  • Claims from employees regarding harassment, discrimination and unfair dismissal
  • Claims from regulatory bodies such as the Australian Securities and Investment Commission, the Australian Taxation Office and the Australian Competition and Consumer Commission
  • Claims from the offices of federal and state governments
  • Claims from competitors for issues such as defamation, patent infringement or copyright infringement

Case Study

A junior male employee at a publishing firm, Jeremy, began a sexual relationship with a female associate director of the company. But when the relationship ended a little over eight months later, Jeremy claimed that he had been forced into the relationship in order to guarantee a pay rise and an improvement in his working hours. He also alleged that his biggest clients were taken away from him following the breakdown of the relationship and he was given mostly menial jobs.

Jeremy complained to the Anti-Discrimination Board about his boss, an insured director of the company, and against the company as a whole for sexual discrimination and harassment. However, before the allegations were presented to the Anti-Discrimination Board, the matter was settled for $35,000 plus legal costs of $15,000, all of which were covered by the company’s D&O insurance policy.


Speak with an adviser about getting D&O insurance

D&O insurance offers essential protection for the directors and officers of many companies in the high-pressure world of modern business. Learn more about the features of this cover and start comparing business insurance policies at finder.com.au today.

Speak with an adviser about getting cover today

Picture: Roger Braunstein, licensed under Creative Commons Attribution-NonCommercial-ShareAlike 2.0 Generic (image cropped)

Richard Laycock

Richard is the senior insurance writer at finder.com.au and is on a mission to make insurance easier to understand.

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