Protecting your board &
executives from risk

Remove the uncertainty

Company directors and officers cannot reduce the complexity of the business, legal, and regulatory environment. What they can do, however, is take steps to protect their own personal assets, through a combination of corporate governance and a well designed Directors and Officers Liability program.

Remove the uncertainty

What is Directors and Officers (D&O) Insurance ?

Directors and Officers (D&O) liability insurance provides protection for senior management in the event that they are the subject of a claim or investigation arising from the performance of their duties at their company.

For the directors, a policy provides personal asset protection should the employer’s indemnification fail for any reason. For the company, a policy provides balance sheet protection where the company has indemnified its directors.

D&O policies are typically structured with three available insuring clauses:

Side A Coverage (Directors & Officers/Insured Persons)
Insurance protection for the Directors and Officers when indemnification is not available to the Directors and Officers of the company resulting in a personal liability risk – Its sole purpose is to protect the individual directors and their personal assets and is the final protection if the company is unable to indemnify the Directors & Officers itself.
Side B Coverage (Company Re-Imbursement)
Insurance protection for the Company when they indemnify a Director and/or Officer of the company, in the form of a reimbursement from the insurer. Side B is a form of balance sheet protection for the company and the transfer of the indemnity exposure that is agreed in the company’s deed of indemnity.
Side C Coverage (Entity Securities Liability)
Insurance protection for the entity’s own liability, specific to securities laws. It is balance sheet protection in the event the company is also named in a securities claim. Please note that many insurers are no longer offering side C coverage due to claims history over recent years in Australia.

Who should consider it?

Any director may face a wide range of claims relating to their day-to-day management of the company.

Claims can arise from a variety of sources, including:

The company, in most jurisdictions directors owe their primary duty of care to their company and may therefore face claims brought against them by the company.
Employees, including claims for wrongful dismissal, harassment or failure to employ or promote.
Shareholders, worldwide security laws usually provide courses of action for shareholders to pursue directors and the company where they have suffered a financial loss due to the wrongdoing of a director.
Regulators / Government Bodies, in most jurisdictions regulators are usually given powers to investigate and hand down fines and penalties.
Competitors, any breach of competition laws could result in competitors filing an action against directors.
Liquidators, in the event of liquidation proceedings the administrators can bring a claim on behalf of the company for any breach of duty.

D&O insurance provides cover for defence costs and investigative costs, costs to appear at inquiries and investigations and Judgments and settlements.

Whether you are found liable for any claims brought against you or the company, the investigation costs and reputational damage from lengthy legal proceedings can be significant.

HDL, the right partner for you.

Seek advice from HDL

When an Australian-based company has overseas subsidiaries, and directors and officers rely solely on the Australian D&O insurance policy for worldwide protection, they may be vulnerable for several reasons:

Local regulations may require that a D&O insurance policy be issued by a locally admitted insurer.
Laws may prohibit a local operation from having its parent company’s insurance policy pay claims.
Indemnity payments by an Australian based parent company to individuals in overseas jurisdictions may have adverse implications for the company.
The local subsidiary may not be able to legally indemnify the director or officer, leaving the individual’s personal assets exposed.

It is therefore always best to seek advice from HDL regarding cover requirements.

Contact HDL for advice

Coverage considerations and policy options.

Run Off Coverage

Directors and Officers policies have a Change in Control provision that states that upon a Change in Control the policy will only respond to wrongful acts or conduct that has occurred prior to the effective date.

To pick up the exposure post Change in Control date, the insured should purchase a Run-Off policy to cover the Directors and Officers exposure from that date forward. The Run-Off policy is usually purchased for 7 years to match the statute of limitations in Australia.

Statutory Liability

Statutory Liability insurance is protection for the Directors & Officers and the company (when applicable) for a claim alleging a statutory breach. Some examples of the types of statutory investigations and claims are Workplace Health & Safety, Employment Practices Laws, Environmental Protection Authority, Spam and Privacy Laws.

Statutory Liability is typically included for the Directors & Officers but not the entity on Directors’ & Officers’ policies. Statutory Liability is an option that can be added to most D&O policies for an additional cost or can be purchased as a standalone policy.

Employment Practices Liability

Employment Practices Liability (also known as EPL) insurance is protection for the Directors and Officers and the company (when applicable) for a claim alleging an Employment Practices Breach. Employment Practices Liability is an additional inclusion for the Directors and Officers but generally not for the entity.

Examples of matters which fall under the category of EPL are wrongful dismissal, sexual harassment, discrimination, bullying, whistleblower actions. Entity Employment Practices Liability is an option that can be added to most Directors and Officers policies for an additional cost.

Excess Side A

Side A coverage is protection specifically for the Directors & Officers. Depending on how a D&O insurance program is structured, Directors & Officers may be left exposed due to sharing the limit with the company (Side C). An option to further protect the Directors & Officers is to purchase an Excess Side A limit or policy.

Some Directors & Officers policies include a small additional limit of Side A in excess of the policy limit if the Side A limit is fully exhausted. There are also insurers that are now offering Excess Side A policies as a stand-alone policy to sit in excess of the master policy.

Prospectus Liability Insurance

Prospectus Liability Insurance is a type of coverage that can be purchased on a stand-alone basis to respond to claims alleging a breach of securities law in connection with a specific prospectus.

Too often misunderstood, albeit so important.

Directors & Officers Liability Insurance is one of the least understood types of insurance, albeit one of the most important.

Australia is home to some of the world’s largest Directors & Officers Liability Insurance claims, and the breadth of risk exposure for company directors and officers is becoming more complex with closer scrutiny from both internal and external stakeholders.

Cyber attacks have become the nemesis of many Directors, with responsibility shifting between being an ‘IT issue’ to being regarded as a critical aspect of corporate governance. Mandatory breach reporting further emphasises cyber’s position at the top of most board room agendas, with maximum fines for companies set at $1.85m and $360,000 for individuals.

Complimentary Review

Securing optimal insurance protection is becoming more challenging.

Having a fresh set of eyes can make a dramatic difference. HDL welcomes the opportunity to evaluate and challenge your current risk and insurance program in a confidential manner that avoids disrupting existing relationships.