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The Anatomy of Directors & Officers Insurance

The Anatomy of Directors & Officers InsuranceDirectors & Officers (D&O) insurance provides liability coverage for managers and executives at companies to protect them against claims as a result of decisions and actions they take within the scope of their duties. A D&O policy can cover the personal liability of company directors and officers as individuals, reimburse the company in the event it has to pay the claim of a third party on behalf of its managers in order to protect them, and the organization itself for a wrongful action.

While major publicly traded firms have the highest risk of attracting D&O claims, all types and size of companies – private, non-profit and public – have potential D&O exposures.

What Does a D&O Policy Cover?

A D&O policy will pay for defense costs and financial losses related to wrongful acts committed by directors and officers in the course of performing their duties. Common D&O risks include employment practices and HR issues, shareholder actions, reporting errors, inaccurate or inadequate disclosure (for example, of company accounts), misrepresentation in a prospectus, decisions exceeding the authority granted to a company officer, and failure to comply with regulations or laws. D&O insurance does not cover fraudulent, criminal or intentional non-compliant acts.

When Is Coverage Triggered?

D&O insurance is written on a claims-made basis. Claims are only covered if they are made while the policy is in effect or within a contractually agreed extended reporting period. A retroactive period is typically agreed upon as well to cover claims for wrongful acts that took place prior to policy inception.

When Should the Carrier Be Notified of a Claim?

Insureds under a D&O policy are typically required to give notice to the insurance company of a claim as soon as practicable. In order to eliminate the risk of inadvertent delays in reporting a claim, the policy could require notice of a claim only after either the company’s in-house general counsel or risk manager first learns of the claim.

How Are Premiums Calculated?

D&O insurance premiums are determined based on the estimated claims frequency and severity in addition to the size of the company. Common risk factors affecting pricing include:

  • Domicile and international activity
  • Claims record
  • Industry sector
  • Stock exchange listing
  • Market capitalization
  • M&A activity
  • Professional experience of management

This is just a brief overview of the workings of directors and officers insurance. Axis Insurance Services specializes in D&O coverage and can review your policy with you to determine if you are properly insured. Give our professionals a call at (877) 787-5258.

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Blogged on: October 21, 2015 by Mike Smith
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