DI RECTORS & OFFI CERS LI ABI LI TY

INSURANCE
Covers Managerial Errors and Omissions, Misstatements, Breach of fiduciary
duties and
It Is Designed To Protect a Companys Directors Or Officers Personal
Fortunes against the Consequences of Their Personal Liability for Financial
Losses Arising out Of Their Wrongful Acts/Omissions.
Traditionally, There Are Two Insuring Clauses
Sec. A : Directors & Officers Liability
Sec. B : Corporate Reimbursement
COVERAGE
Who Is Covered?
Former, Present, And Future Members Of :
- The Board Of Directors
- Management Of The Parent Company (Policy Holder) And/Or Of
Subsidiary Companies
What Is Covered ?
Damages Awarded Against Directors Or Officers
- Reimbursement If the Insured Company Indemnifies Its Directors
and Officers.
- Defence Costs
PREAMBLE
A. The Insurer shall pay the loss of each insured resulting from any claim
first made against the insured during the policy period for any wrongful act
in the Insureds capacity as a Director, Officer or Employee of the Company
except for and to the extent that the Company has indemnified the Insured.
Definitions
Loss means damages, judgments, settlements, & defence costs, however it
shall not include civil or criminal fines or penalties imposed by law, non
compensatory damages including punitive or exemplary damages, taxes,
any amount for which the insured is not legally liable
Director or Officer means any natural person duly appointed or elected
as a director or officer of the company while acting in their capacity as a
director or officer on behalf of the named insured.
Wrongful Act means any actual or alleged breach of duty, breach of
trust, neglect, error, misstatement, misleading statement, omission, breach
of warranty of authority or other act by the directors, officers or employees
in their respective capacities as director, officer or employee of the
company or as a director or officer of any outside entity.
Insured
Insured means any natural person who was, is or shall become a
director or officer of the company. Insured shall include any employee of
the company, but only for a claim alleging wrongful acts (s) committed by
the employee in a managerial or supervisory capacity. With respect to an
employment practice claim only, insured shall include any past, present or
future employee of the company.
Claims
Claim- Any suit or proceeding brought by any person or organization
against an insured for monetary damages or other relief, including non-
pecuniary relief;
Any written demand from any person or organization (other than by or on
behalf of the company) that it is the intention of the person or organization
to hold an insured responsible for the results of any specified wrongful act;
any criminal prosecution brought against an insured;
any administrative or regulatory proceeding or official investigation
regarding any specified wrongful act of an insured;
Claims
Employment practice claim means any claim or series of related claims
relating to a past present or prospective employee of the company & arising
out of any actual or alleged unfair or wrongful dismissal, discharge or
termination, either actual or constructive, of employment, employment
related misrepresentation, wrongful failure to employ or promote, wrongful
deprivation of career opportunities, wrongful discipline, failure to furnish
accurate job references, failure to grant tenure or negligent employee
evaluation, or sexual or workplace or racial or disability harassment of any
kind (including the alleged creation of a harassing workplace environment);
or unlawful discrimination, whether direct, indirect, intentional or
unintentional, or failure to provide adequate employee polices or
procedures.
D & O Risk exposures
The following parties can bring an action against the Director &Officers
Shareholders
Employees
Liquidators , Receivers, Administrators
Companys Creditors
Dept. of Trade Industry & other Govt. Regulatory Bodies
Customers, Suppliers
Other Third parties
Claimants in D & O Litigation
Shareholders 42%
Competitors 7%
Customers & Clients 14%
Employees 32%
Other Third Party 4%
Government 1%
What can trigger a D&O claim?
Violation of Companies Act
Violation of SEBI regulations (for a listed Co.)
Misuse of Corporate funds
Irregularities in securities issue
Auditing & accounting irregularities
Breach of fiduciary duties (duty of obedience, duty of diligence, duty of loyalty)
False statements to government/regulatory agencies
Misleading information
Inadequate supervision
Mergers & acquisitions (including hostile takeover bids)
Misuse of inside information , insider trading
Employee Discrimination / Harassment
Bankruptcies
Foreign investments
Issuance of incorrect or misleading information or for mismanagement of the
corporate change
Associates
Associated Cos. & Subsidiaries existing at the time of underwriting are
covered by default under the policy. ownership interest of the organizations
issued & outstanding voting shares either directly or indirectly through one
or more of its subsidiaries, provided that such organization does not have a
listing of any of its securities on any exchange in US or Canada
Associated Companies Any organization of which the policyholder owns at
the inception of the policy period, &maintains during the policy period, at
least a 5% but no more than 50%
Subsidiary means companies in which the policyholder directly or
indirectly-Controls the composition of the board of directors; or
Controls more than half of the voting power; or
Holds more than half of the issued share capital.
Exclusions
Willful / Intentional Infringement of law
Criminal Behaviour
Fraudulent and/or Intentional Acts or Omissions of an Insured
Environmental Damage or Pollution
Bodily Injury or Property Damage
Fines, Penalties and other penal liability imposed by law
Insured Versus Insured Claims
Any Director Or Officer Gaining Any Personal Profit Or Advantage Or Receiving Any Remuneration
To Which They Are Not Legal Entitled.
Failure or the Effects of Any Product or Failure to Render Professional Services And Or
Professional Advice.
Payment Of Commissions, Gratuities Or Any Other Benefits To Political Groups, Government Or
Armed Service Officials Or Directors/Officers/Employees Of Or Any Person Having An Ownership
Interest In Any Customer Of The Company.
Dishonesty Or Fraud By Any Director/Officer (But There Is Cover For Costs And Expenses Of
Successfully Defending Any Action Brought In This Connection).
Prior Acts
Prior & Pending litigation
Why Indian Companies Need D & O
Insurance
To protect from Overseas D & O exposures
Foreign domiciled subsidiaries or assets
Listing of stock or debt on a foreign exchange
Foreign Institutions investing locally
Offering of services overseas including the internet
To protect from Indian Exposures
Why Indian Companies Need D & O
Insurance
Under the existing Companies Act Directors have highly onerous legal
obligations to uphold. They have a fiduciary duty to act honestly and good
faith. A duty to exercise skill care and diligence, many statutory duties
Under the Companys 2nd Amendment Bill, Board Report to include
Directors Responsibility Statement, Nominee Directors to have same
responsibility, be subject to the same discipline, be equally accountable to
the shareholders.
Clause 49
SEBI monitors and regulates corporate governance of listed companies in
India through Clause 49. This clause is incorporated in the listing
agreement of stock exchanges with companies and it is compulsory for
them to comply with its provisions.
Features of Clause 49
Lays down tighter qualification criteria for independent directors.
Time gap between two board meetings has been defined (3 months)
Audit committee members should be financially literate
Board to lay down the COC for all board members & senior mgmt. to
compulsorily follow
CEO & CFO to certify the financial statements & cash flow statement
Company to lay down procedures for informing the board members about
the risk management & minimization procedures.
Where money is raised through public issues, rights issues, the company
will have to disclose the use of funds according to major categories
specified.
Criteria of payment to non-executive directors to be published in AR.
D & O LIABILITY
THANKS