Directors and officers insurance
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Directors and officers insurance
Directors and officers liability insurance (D&O) is a special type of cover designed to protect individuals from personal losses who serve as directors or officers of a company. If legal action is taken against them due to their managerial decisions, this insurance helps cover the legal costs and other related expenses they become personally liable for.
Why is directors and officers insurance important?
D&O is essential because it protects the personal assets of the directors and officers. Without this insurance, legal actions could be financially devastating for individuals who might be held personally responsible for decisions made on behalf of the company. The increased personal liability associated with these roles underscores the personal financial risks that directors and officers face without adequate D&O insurance coverage. This protection encourages competent individuals to take up these roles without fearing personal financial loss.
It’s crucial coverage if your business:
- Faces legal risks
- Has external investors or bond holders
- Operates internationally
- Is publicly listed
- Has the potential to incur financial losses
What does directors and officers insurance cover?
Legal Defense Cost
D&O helps pay for legal defense costs, including lawyer's fees, court costs, and other related legal expenses. This ensures that the director or officer doesn’t have to bear these costs alone.
Settlements and Judgments
Sometimes legal actions result in settlements or judgments that must be paid. D&O insurance can cover these expenses, protecting the personal assets of the individuals involved.
Breaches of Statutory Acts by Directors or Officers
Directors or officers can sometimes unknowingly breach statutory acts which can result in hefty penalties and fines. These may include breaches related to commerce Act, companies Act, consumer guarantees Act or other Act. D&O provides coverage for these kinds of situations, preventing the financial burden from falling solely on the individuals involved.
How much does directors and officers liability insurance cost in NZ?
Directors and officers premiums are calculated on several different factors including:
- Size of company
- Industry
- Number of directors & officers
- Level of cover
Directors and officers insurance in NZ typically costs between $50 to $100 per month.
Who needs directors and officers insurance NZ?
Directors and officers insurance liability is suitable for:
Large publicly-traded corporations
Small and medium-sized enterprises
Non-profit organizations
Start-ups
Any organization with a board of directors
Additionally, private companies, despite their size or industry, are vulnerable to potentially damaging lawsuits, making D&O an essential consideration for these entities as well.
In some cases, if a director or officer is found guilty of criminal or fraudulent conduct, the insurance may not cover the associated costs. However if claims arising for their wrongful acts come from negligence then this cover can protect directors.
Usually, D&O insurance covers all directors and officers of a company, but it’s wise to verify the specific coverage details with your broker.
How do I get proof of directors and officers insurance?
You can usually get proof of insurance for a smaller company same day when you purchase business through Gerrards. Larger companies or publicly listed companies requires a minimum of one to two weeks due to the complexities involved.
Acquiring directors and officers insurance from traditional insurance brokers may require a few weeks, a delay that could create problems for policyholders who need instant insurance proof of directors and officers insurance for a contract.
To obtain insurance coverage promptly, contact us. We may require you to provide some fundamental details about your business, such as:
The name of your business
Your financial statements
The industry you operate in
Organization structure
Number of directors or officers
What does directors and officers insurance not cover?
There are certain key areas where directors and officers insurance may not provide coverage:
Fraudulent Acts
Claims resulting from deliberate fraud or dishonest acts are usually not covered.
Illegal Profits
Profits gained through illegal means or criminal actions are not covered.
Personal Profits
Any personal profits unrelated to company business are not covered.
Contractual Liabilities
Liabilities arising from specific contracts may not be covered.
Contractual Liabilities
D&O insurance does not cover claims related to physical injury or property damage.
Other common questions about loss of directors and officers insurance NZ
Yes, Entity Coverage can be added to protect the organization itself, not just individual directors and officers.
These refer to different levels of protection. Side A covers individual directors, Side B reimburses the company for indemnifying those individuals, and Side C covers the company itself.
Yes, D&O policies can be tailored to suit specific needs, risks, and requirements of the business.
A claim is typically filed by shareholders, employees, competitors, regulators, or other third parties, and the insurance will cover the legal costs of defending against the claim, and settlements or judgments if applicable.
It’s essential to report as soon as possible, as delays can lead to complications and possibly a denial of the claim.
Company directors are responsible for the strategic direction and governance of the organization – they have a fiduciary duties to the organization. D&O protects them from personal losses due to legal actions taken against them in their capacity as directors, covering defense costs, settlements, and judgments.
Directors and officers may incur legal defense costs, settlements, and other expenses from lawsuits. D&O insurance covers these costs, protecting their personal assets and ensuring the company can attract and retain top talent.
Management liability insurance is a broader package that includes D&O insurance among other coverages. It protects against risks related to the management decisions and actions of directors and officers, covering various liabilities they might face.
Officers liability insurance cover includes legal defense costs, settlements, and judgments arising from management decisions, employee dismissals, shareholder grievances, and acts committed in good faith by directors and officers.
Reviewing the product disclosure statement is essential to understand the coverage details, exclusions, and terms of the D&O insurance policy, ensuring it meets the specific needs of the directors and officers.
Directors and officers face liabilities related to their decision-making and management actions, including legal claims from shareholders, employees, and regulators. D&O mitigates these risks by covering the costs incurred from defending against such liabilities.
