D&O Liability Insurance Frequently Asked Questions
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What does D&O Liability Insurance cover?

D&O insurance protects the personal assets of a company's directors and officers, as well as that of the company itself. The cover also provides reimbursement to the company when indemnifying its directors and officers. D&O insurance pays for legal defence costs, settlements and awards when defending directors and officers from a valid claim.

Are directors and officers not protected by the company in the event that they are sued?

The company's Memorandum of Incorporation (previously Articles of Association) may or may not allow a company to indemnify its directors and officers. There is no guarantee however that the company will pay the heavy financial burden of defence costs in prolonged legal proceedings or damages awards. The company may also not have the financial resources to indemnify the directors and officers in the event of a claim.

Are a company's subsidiaries covered under the D&O policy?

Yes, subsidiary boards are covered. There is also provision for automatic inclusion of newly acquired or created companies; however the Insurer would have to be notified of these.

What are derivative and class actions, and are they covered under the D&O policy?

A derivative action is when the shareholders sue a third party (such as a director or officer) on behalf of the company.

A class action is when a group of people take a person (such as a director or officer) to court. The new South African Companies Act under s157 properly introduces the concept of a class action into South African law. Any of the following persons may apply for a class action:

  • Any person considered in the Act or any person acting on behalf thereof
  • Any class a affected persons
  • Any person acting in the public interest

The application can be made to a Court, the Companies Ombud, the Take-Over Panel, or the Commission. The application for a class action has been simplified, in that one is no longer required to act through a liquidator.

Derivative actions and class actions are both covered under the D&O policy.

The D&O policy does not cover fraudulent acts, how will a director defend a fictitious claim?

The D&O policy provides defence costs. The Insurers will decide whether to defend the director in court. Therefore the director will not have to pay for expensive legal battles which may be drawn out for many years. Should the case be defended successfully, the director would not sustain any personal loss. However if it is found that the director acted fraudulently, the Insurers will subrogate.

Why should private companies purchase D&O insurance?

The costs of defending legal actions may exceed the new worth of the company's assets. A judgement against a director of a private company could lead to major financial losses. Complicated conflicts of interest could arise due to the intertwined responsibilities which exist in private companies.

Who are the typical claimants on D&O policies?

There are numerous examples of D&O claimants, and these are growing as director liability is expanding. The following are a few classic examples: shareholders, investors, customers, consumer groups, competitors, unions, contractors and government.

What are some of the main exclusions on the D&O policy?

Dishonesty or fraud, questionable payments, copyright, professional indemnity, illegal profits or gains, pensions, injury, sickness, damage to property and bodily injury, and deliberate acts.

What are some typical claims examples on a D&O policy?

The types of claims against a D&O policy are extensive continually increasing, some examples are:

  • Minority shareholders allege that directors have abused their position in order to favour certain dominant shareholders.
  • Competitor alleges that the defendant director (former employee) has misappropriated trade secrets and confidential information.
  • Class action complaint from outside investors stating that directors failed to disclose material information, which could have elucidated that the company would eventually be liquidated.
  • Creditors allege that directors utilised the plaintiff's services for the company although the said directors were aware that the company was insolvent and would not have the ability to pay.

What risk management services does Camargue Underwriting Managers offer with a D&O policy?

Camargue Underwriting Managers utilises a M-Cubed risk-management philosophy:

  • Manage: network of legal professionals, risk managers, arbitrators, and risk analysts provide clients with specialist risk management and analysis tools
  • Mitigate: technology training and onsite consultation assists in minimising financial and legal risks
  • Migrate: A-rated progressive insurance products provided through Camargue's network of insurance Brokers transfer potential risk

Some of Camargue's risk-management services are:

  • Private arbitration: Tokiso Dispute Settlement keeps sensitive board disputes away from the media, protecting priceless reputations.
  • Membership of the IoDSA: Sponsored memberships of The Institute of Directors in Southern Africa.
  • Training and education: Director improvement and regulatory compliance through the IoDSA.

Please contact your short term insurance broker in order to obtain a quote.