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Directors & Officers Liability Insurance provides protection for the personal assets of directors and officers by providing indemnity for loss arising from a claim as a result of a 'wrongful act' committed by them in the course of conducting their business.
All Company Directors and Officers have an exposure to potential claims and legal action regardless of their company's size and business activities. Corporate governance and regulatory surveillance places immense accountability and pressure on business and company directors and officers to perform their duties thoroughly. Claims can arise from many sources and include:
- Breach (alleged or actual) of the Trade Practices/Fair Trading Legislation
- Enquiries by regulatory authorities (e.g. ASIC, ATO, ACCC)
- Breach of Contract
- Shareholder disputes
- Defamation
- Competitors
- Creditors
Directors & Officers Insurance generally aims to provide protection for:
- loss arising from a ‘wrongful act’ committed by them in the course of conducting their business,
- settlements, compensation and/or damages awarded against them,
- legal costs and other expenses associated with defending a claim.
The definition of a ‘Wrongful Act’ varies from one insurance company to another. However it is commonly defined as any misstatement, misleading statement, omission, an actual or alleged breach of duty committed, alleged to be committed or attempted by or any other matter claimed against any Insured Person, individually or collective as an Insured Person whilst acting in their capacity.
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Does your current policy provide adequate insurance cover?
It is important that you understand the extent of your policy coverage and your insurance requirement. Policy coverage is always subject to the terms, conditions and exclusions of the insurance contract and policy wording provided by the insurer. The importance of understanding the extent of your policy coverage and it’s limitations is vital to ensure that you are adequately protected in the event a claim should arise.
Claims Made Contract of Insurance
Directors & Officers Liability Insurance and Management Liability Insurance policies are “Claims Made” policies,that is they only cover Claims made or Known Circumstances that you become aware or could reasonably be expected to give rise to a claim that arise during the period of insurance.
If there is any claim or potential claim or even a circumstance that could reasonably be expected to give rise to a claim, it should be reported to your insurer immediately, regardless of your own view as to fault. If a claim or circumstance is not reported within the insurance period in which it arises your insurance policy is unlikely to respond.
‘Known Circumstances’
A 'known circumstance' could be defined as any fact, situation or circumstance, which a reasonable person in the insured’s professional position would have thought, might result in someone making a claim against him/her. Therefore if a claim arises after the inception date of the policy from a fact, situation or circumstance that the insured knew or should have known, at the time of the commencement of the policy that might give rise to a claim, it would normally be excluded as it arose from a ‘known circumstance’.
The Importance Of Notifying All Known Circumstances
By notifying all circumstances that might give rise to a claim, during a policy period, an insured can get the benefit of their statutory rights under Section 40(3) of the InsuranceContracts Act 1984 (the Act). Section 40(3) provides an insured with statutory rights to notify a circumstance or insured, to an insurer, during the currency of the policy. If a claim eventuates against an insured from the notified circumstances, then the insurer cannot deny indemnity, despite the fact that the claim arose outside the period of insurance.Therefore, any fact, situation or circumstance, which a reasonable person in the insured's professional position would have thought might result in someone making a claim against them, should be notified to their current insurer.
Changing From One Insurer To Another (Notification Of Known Circumstances)
If you change insurers, you will need to notify your insurer of every conceivable circumstance before the expiry date of your policy. If this is not done, and if a claim was to occur in the future from a circumstance not previously notified, you may be left uninsured, with neither the previous or the current insurer accepting liability for the claim. The prior insurer may deny the claim as the insured failed to notify the circumstance or claim during the period of insurance.
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