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If you are a director or an officer of an Australian company, be it public or private, the threat of personal litigation from shareholders, employees, creditors, customers, environmental groups, regulatory bodies, banks, suppliers and the public is ever threatening and extremely costly to defend. Without proper cover, it will cause you complete and disastrous financial ruin.
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Do you have to hold the position of “director” to be regarded as a director by law? |
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How an insurance company defines who is an officer... |
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What type of coverage can you get?
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Breach of duty, |
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Breach of trust, |
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Negligence, error, omission, |
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Costs due to damages, judgments, settlements, legal costs and expenses. |
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Directors and Officers insurance is not a luxury
In today’s world, whenever something goes wrong with a business, the first thing that comes to mind is “sue the directors”.
Usually one would expect that their company will meet the cost of defending any case brought against a director or officer. But what happens when the company is unable or unwilling to foot the bill?
Common exclusions and limitations:
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Willful breach of duty in relation to the company (and other criminal offence) |
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Contravention of s.182 or 183 (directors’ use of position and use of information) |
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Prospectus-type liability (e.g. companies embarking on a public offering) |
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Professional indemnity (e.g. claims alleging a breach of duty other than the professional duties owed by a director) |
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Improper profit (e.g. claims about a any director having gained any personal profit that the director was not legally entitled to) |
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Insured versus insured (e.g. claims by one person covered by the insurance against another, including by the company against a director.) |
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Non-disclosure. |
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Punitive, aggravated, multiple or exemplary damages, and fines or penalties including civil penalties. |
I am just a private company’s director. Do I really need a D&O cover?
A private company’s directors are susceptible mostly to employment related claims such as wrongful dismissal, discrimination, etc. In this circumstances you will need a Management Liability insurance which is often built in as a part of a Directors and Officer policy.
Will a director be completely protected by a Directors and Officers insurance?
No. When the company breaches a statutory obligation, a director may often be found personally liable for the corporate fault.
There is ongoing discussion on legislative reform as represented by the D&O Insurance Report and the Personal Liability for Corporate Fault Report of the Corporations and Markets Advisory Committee (CAMAC) who advise the government on such matters.
In CAMAC's view, the present legislative provisions discriminate unfairly against directors and officers compared with the way in which other people are treated under the law.
As a director, especially if one of a group, you need to take special care in checking your personal liabilities.
We have a global D&O policy. We are already covered, aren’t we?
Well, yes and no. Until recently D&O policies used to operate globally. However, due to the recent increase in legislative regulations on corporate governance and the ease of court access, and the variety of jurisdictional environments in which directors and officers operate, the effectiveness of a global D&O policy is questionable.
The best option to protect your company’s Directors and Officers is to arrange locally admitted policies in each country in addition to a global policy.
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