When you mention the word director many people imagine an untouchable entity that has complete power over the workings of a company. You’d think that all a director does is give out orders without being deemed responsible for any consequences due to his actions. But in reality, that’s hardly the case. Directors are perhaps the part of a company that’s most prone to all kinds of costly lawsuits arising from any decision they made (however innocuous it might have appeared at the time).
Most corporate bodies, in fact, are protected by public liability and many other company insurance policies that normally do not apply to the individuals within the corporation. This leaves all the directors, officers and other key company players susceptible to a number of malicious lawsuits ranging from:
- malicious claims by unsatisfied customers;
- investors and shareholders blaming directors personally for any losses;
- shareholders suspecting mismanagement;
- liquidators suspecting incorrect payments to creditors or wrongful actions;
- actions by the government when insolvent trading is suspected;
- actions by the police when fraud is suspected.
Whenever such an action is brought against a director, his personal assets may become endangered.
In order to protect the directors from suffering large financial losses due to such lawsuits, many companies today make the smart decision to start a directors indemnity insurance. After signing up for a package, a directors indemnity insurance policy normally provides cover for a whole year on a “claims and notified” basis. This type of insurance is an immediate and effective response to a legal threat against a director and can provide cover for:
- Adverse cost orders, damages, settlements, and judgements;
- Defence costs;
- Bail bond cost;
- Prosecution expenses;
- Investigation costs;
- Public relations expenses;
- Deprivation of assets costs; and more.
The directors indemnity insurance is basically a policy designed to protect the directors against all the risks they face in today’s ruthless business world. Some executives believe that only large companies can benefit from this kind of policy, which is not true. Even small companies without any shareholders can potentially get slapped by a vendor or customer with a six-figure lawsuit. In those moments, the few hundred dollars spent on protecting their directors can prove to be a good preventive measure.
It’s important to note that a directors indemnity insurance does not cover costs that are connected with fraud, criminal or intentional non-compliant acts, acts for personal profit, property damage and bodily harm and other occasions when the director is found to have acted knowingly and on purpose.