Broker-arranged
Directors and officers insurance
Directors and officers insurance covers the people who run a company for claims made against them personally about how they ran it. Here’s what it covers, the duties ASIC says directors owe, and how it fits inside management liability. A licensed broker arranges it.
- The duties ASIC sets out
- How D&O fits with management liability
- One short form, then a licensed broker takes it from there
What is directors and officers insurance?
Directors and officers (D&O) insurance covers directors, secretaries and senior managers for claims made against them personally for alleged wrongful acts in managing the company, and pays the legal costs of defending those claims. For small private companies it’s usually a section of a management liability policy rather than a standalone cover.
The duties ASIC sets out
ASIC says officeholders are legally required to act in the best interests of their company. Its list includes:
| Duty | What ASIC says |
|---|---|
| Be honest and careful | Officeholders should be honest and careful in everything they do. |
| Act in good faith for a proper purpose | Make decisions in good faith and for a proper purpose. |
| Avoid conflicts | Disclose any material personal interests you have. |
| Not harm the company or gain improperly | Not harm the company or get an advantage for yourself or someone else. |
| Prevent insolvent trading | Company directors have a legal obligation to prevent insolvent trading. |
| Understand the company | As a director, you should understand what your company is doing at all times. |
ASIC says there are penalties for officeholders who don’t meet their duties, including fines and jail time, that you may be penalised even if you didn’t mean to do the wrong thing, and that a director can be liable for certain debts of the company.
What D&O usually covers, and what it doesn’t
Every policy differs, so the PDS is the final word.
Usually covered
- Claims against directors personally for alleged breaches of duty.
- Defence costs for covered claims and investigations.
- Regulatory investigations in many policies, within limits.
- Claims by shareholders, creditors or employees about management decisions.
Usually not covered
- Deliberate dishonesty or fraud. Once established.
- Claims you knew about before cover started. Policies are usually claims-made.
- Fines the law doesn’t allow to be insured. Check the policy.
- Injury and property damage. That’s public liability.
How it fits with management liability
For a small private company, Management liability usually bundles D&O with employment practices liability, statutory liability, crime and tax audit cover. A standalone D&O policy suits larger companies, boards with outside directors, and not-for-profits with volunteer committees.
How to get D&O cover through us
Directors and officers insurance questions
Do small company directors need D&O insurance?
Directors can be personally liable for breaches of duty and certain company debts, so many small companies hold D&O as part of management liability. A broker can talk through the risk for your company.
What is the difference between D&O and management liability?
D&O covers directors and officers personally. Management liability bundles D&O with covers for the company itself, such as employment practices and statutory liability.
Does D&O cover insolvent trading claims?
Many policies cover defence costs for claims alleging breaches of duty, including insolvent trading, subject to exclusions for dishonesty. Check the PDS.
Does D&O cover not-for-profit committees?
Policies exist for association and not-for-profit committee members. A broker arranges them.
Why is D&O arranged by a broker?
The cover depends on the company’s size, structure and activities, so a licensed broker reviews it and arranges suitable quotes.
What does D&O insurance not cover?
Dishonest or fraudulent conduct, profit a director wasn’t entitled to, and claims the director already knew about before the policy started are standard exclusions. The Corporations Act also stops a company paying premiums for cover against a wilful breach of duty to the company, or a contravention of sections 182 or 183 (misuse of position or information). Fines and penalties are covered only where the law allows it.
What are Side A, Side B and Side C in a D&O policy?
Side A pays a director or officer directly when the company can’t or won’t indemnify them, for example in insolvency. Side B reimburses the company after it indemnifies a director. Side C covers the company itself as a defendant, which is mainly used by listed companies for securities claims. Private company policies are usually built on Side A and Side B.
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Directors and officers