No one wants to be held responsible for anyone else's action. Especially if it's a collective decision, nobody would want to take the sole responsibility for it. They might gladly take the credit, but would be skeptical of the discredit that may go along with it.
Same thing happens with a company. The directors and officers take up the major decisions of a company. They are held responsible for their choices by the investors, shareholders, government bodies, employees, creditors, suppliers, consumers and all others related to the company. Be it a private company or a publicly owned one, several risks are associated with any single decision of a company. Since the decisions are agreed upon by all, none of the business directors or officers wants to be blamed for the actions of the company. Directors and Officers Liability Insurance provides protection to the directors and chief officials of a company, in case they are sued for the management decisions.
When does a Directors and Officers Liability Insurance serve its purpose?
The directors and officers are accountable for the implementation of the company's policies. They can be sued for several purposes, and that is when the Directors and Officers Liability Insurance (D&O Insurance) will provide financial protection. Have a look below to know when D&O Insurance lends assistance.- Management of investment decisions : If the investment decisions of a company are not taken properly, the portfolio of the company suffers. The directors and officers are accountable for the evaluation of the investment opportunities of the company. In case any of their wrong decision brings about a huge financial loss, they might be sued. D&O insurance acts as support during such critical junctures.
- Disclosure of information : Certain information related to company are obscured from common knowledge. The directors and officers of the company have access to that specific information only and if they deem fit, can release any information. However, if the disclosure of information proves harmful for the company's reputation or brings down the market position of the company, the responsible official can be held guilty. The D&O insurance policies protect the assets and the directors and officers of the company during such times.
- Clash of interest : Some directors or officials might be associated with multiple companies. As such, they may have separate competitive interests. It is essential for the company to monitor such situations, as conflict of interests may lead to confusion amongst the company directors and officials. Shareholders and other investors try to make use of this type of confusion to have their way. D&O can be of assistance in such situations.
- Decisions related to hiring and firing : The directors and officers are not directly concerned with the hiring and firing decisions of the company employees. However, the company policies for hiring and firing are approved by them. Besides, they also look over the implementation of those company regulations. D&O insurance policies guard the individual directors or officials, if any of the terminated employees takes the matter to the court.
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