Business decisions carry responsibility. Directors and officers make decisions on investment, finance, business organisation and oversight. Even when they act diligently, their decisions or omissions can become the subject of a claim or proceedings.
D&O insurance (Directors and Officers Liability) is intended to protect insured managers from the financial consequences of claims alleging actual or alleged errors and omissions in their management roles. Within the agreed terms, protection may include defence costs, settlements and damages awarded.
Why does it matter even when liability has not been established?
A director does not need to be found liable for costs to arise. A claim alone may require lawyers, preparation of documents and a lengthy defence process.
For example, a shareholder may allege that management failed to disclose important information before an investment decision, while a creditor may challenge management’s conduct during financial difficulties. Whether the claim has merit and whether it is insured are separate questions.
D&O insurance can therefore also be valuable in funding defence against unfounded claims, subject to the policy.
Who does the insurance protect?
The definition of insured persons must be clear. Depending on the terms, it may include past, present and future directors, members of management and supervisory bodies, and other people with relevant managerial authority.
A policy may protect an insured individual directly when the company cannot or is not obliged to indemnify them. It may also reimburse the company for amounts it has properly paid on an insured manager’s behalf. Cover for claims against the company itself is a separate issue and should not be assumed.
D&O can also be relevant to private companies, family businesses and companies with a small ownership group, rather than only large organisations and listed companies.
What does D&O not automatically cover?
D&O does not guarantee the success of business decisions or insure every company loss. It does not replace professional indemnity insurance for services provided to clients, cyber insurance or crime insurance.
Deliberate fraud, dishonest conduct and unlawful personal gain are commonly subject to exclusions. However, how and when those exclusions apply must be checked: an allegation is not the same as a final determination of conduct.
Defence costs and fines are different
Investigations and regulatory proceedings require particular attention. The possibility of cover for lawyers, representation or participation in proceedings does not mean that any resulting fine is also insured.
D&O should therefore not be presented as insurance for fines in Montenegro. For defence and representation costs, establish separately who is protected, in which proceedings and under what limits, consent requirements and exclusions. General wording from international policy forms is not sufficient confirmation of specific cover.
Status Broker helps companies assess their D&O insurance needs, compare proposed terms and understand the protection for managers and the company before making a decision.