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Directors and Officers Liability Insurance (D & O)

By Bert Kleinhans, 15 February 2019

Directors and officers liability insurance in the short term insurance industry, is one of the covers that is most often overlooked and and yet it is certainly one of the most important covers for any business. Its main purpose is to provide financial protection for directors and executives (decision makers) in their personal capacity. Their position puts their personal assets at risk.

This type of cover is necessary for protecting the personal interests of directors and executives who can be held liable for offences and unlawful acts in the performance of their managerial responsibilities. This may include neglect of duty, mismanagement, errors, misleading statements, delusions and the failure of accounting and financial companies to disclose financial irregularities.

A third party (plaintiff) has the right to act jointly and separately against the company as well as the directors or directors in their personal capacity, which can result in substantial legal costs and civil claims. Legal defence costs are very expensive as legal practitioners need to have the necessary knowledge and expertise to oppose the claim. D & O insurance covering these defence costs and ensuring that the company's cash flow remains unchanged is indispensable.

Directors often invest their own personal wealth in the business and therefore their financial position is directly linked to the financial health of the company. A claim can therefore directly affect their family's financial security as well as personal assets. A lengthy legal process that can take years can lead to a very stressful and traumatic period for the family.

Directors and managers are also exposed to shareholder/third party claims when they claim the share price was affected by the negligent conduct of officials. Cybercrime is a growing risk for executives. Furthermore, it is even possible that directors and managers may be held liable for the death of staff members under criminal law by allegedly not providing a safe working environment. The above emphasises the need for D & O cover for legal costs.

At all businesses, no matter how big or small, and even community associations that need to comply with certain laws, the directors and executives are exposed to claims. In addition, the boards of some entities often consist of volunteers who do not have the necessary knowledge and experience. They are mostly unaware of the extent of their responsibility and their personal exposure through action or failure.

There is an increasing awareness among the general public of their rights to claim from directors in their personal capacity where businesses are not managed in a responsible manner.

D & O liability insurance is handled by a number of specialist underwriters and there is a duty on brokers to bring it to their clients' attention.

Please contact one of our expert advisors for further information.

The above-mentioned is for information purposes only and is in no way advice. Boshoff Visser Konsult (Pty) Ltd. encourages readers to get in touch with an expert financial advisor before making any decisions.