What does a D&O Liabilities policy cover?
It covers managers against their personal liability for decisions taken and actions implemented in their department or company.
If the company has failed to adhere to the law and are facing regulatory action, the D&O policy covers managers against such personal liability to pay damages.
The D&O policy broadly includes but is not limited to termination of employment, misrepresentation, discrimination, harassment, sexual harassment, failure to employ or promote, demotion, invasion of privacy, defamation or infliction of emotional distress.
Sometimes, the insurance company can customise the policy, depending on the company's requirement. For instance, if you are planning to take your company public, you can include the risk arising from the public offering under the D&O policy.
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Will the policy cover all charges in case of legal action against the director?
The D&O policy pays all damages, awards of cost or settlements for which a director or officer is held liable. For instance, in the Phaneesh Murthy case, if there is to be a settlement, it would be paid out of the D&O cover.
When a regulatory authority launches an investigation against a director or officer, the fees, costs and expenses incurred by the director or officer to prepare for and attend such investigation is paid by the D&O policy.
It also covers bail bond and civil bond expenses, public relation expenses and even kidnap response costs.
Read more: Imalia's Personal Director's Cover (Passport D&O)
How are the premiums fixed and who pays the premium?
The premium for a D&O policy take into account factors like a company's size (measured by its gross assets), its scale of operations (revenue), its geographical footprint (markets and manufacturing), the nature of the business itself (internet business v/s brick and mortar business), its employee strength and diversity, its listing in domestic and overseas exchanges, its market cap, its financial performance, its acquisition history and so on.
As it is a corporate product, the policy is bought by the company. The premiums are paid by the company and not by individual employees.
Read more: Directors' and Officers' Liabilties: Are you covered if things go wrong?
A D&O POLICY:
- It is a policy offered by general insurance companies - check out our policy here
- It is recommended for all directors, officers and top management of a company
- It covers managers against personal liability for decisions or actions taken in the daily functioning of the company
- It pays all damages, awards of cost or settlements for which a director or officer is held liable
- It is a corporate product bought by the company
- Premiums are fixed based on company's assets, revenue, nature of business, employee size, whether it is listed in domestic and overseas exchanges
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This is an edited version of a story that first appeared on Business Standard.