Directors' and officers' insurance can provide you with a way to protect yourself from allegations of wrongful acts committed while carrying out your business duties. However, it can be difficult to know exactly what kind of Directors Insurance you need and why your business needs it, so read on to learn more about these important policies.
How to Protect Yourself with Directors Insurance
When you hear that Directors Insurance can help protect your company from lawsuits and legal action, what does it mean? In practical terms, director's and officer's liability insurance is designed to reimburse a corporation for expenses incurred by its directors in connection with suits brought against them. Although corporate law does not impose any direct personal liability on company officials like directors or officers, corporations themselves may be held responsible for their employees' actions; therefore, such coverage can extend to defense costs arising from criminal and regulatory investigations or trials as well as civil suits brought by victims of illegal activities. Intentional illegal acts are typically not covered. There are many reasons why a business would consider getting director's and officer's liability insurance, even if they don't expect to be sued.
Simply put, it is not just about protecting yourself against legal liability you may benefit from the peace of mind as well. With Directors Insurance, there's less chance that your business will go bankrupt or that you'll lose valuable assets because of a civil lawsuit. Plus, most companies look more favorably on businesses with such protection no matter how fair or unfair it might seem, board members and top executives carry more responsibility for their actions than ordinary employees and can do much more damage to a company when they make a mistake. Although directors' and officers' liability insurance has been around since at least 1961, it was relatively uncommon until after 2002. The Sarbanes-Oxley Act of 2002 requires public corporations to have both internal controls in place and outside audits performed annually by an independent auditor. The act also holds all corporate officers responsible for any damages incurred by any fraud committed by anyone within their organization during that year.
Do You Need Directors Insurance? Here's What You Need to Know
Directors’ insurance is not necessarily a financial necessity, but it could prove to be invaluable in helping your business deal with and bounce back from any number of legal or financial threats. Beyond personal liability, directors and officers can find their company liable for damages, so setting up some form of protection for that reason alone is recommended. In fact, under Section 302 of Sarbanes-Oxley board members may personally be on the hook Business Insurance for conscious disregard of laws if they don’t meet certain requirements. Directors Insurance typically covers criminal proceedings related to actions taken as a director or officer, though exceptions do exist; many insurers include specific language within their policies allowing claims resulting from violations.
Directors’ insurance is a policy that provides personal liability protection to board members and officers, covering them in instances where they are sued due to their position in your company. Directors can face legal action if they neglect their duties or knowingly disregard laws, regulations, rules, and other governing bodies; depending on what industry you operate in, you may also be liable for damages outside of a lawsuit. As such, Directors Insurance serves as protection against both criminal and civil claims relating to your position.
Insuring Directors Against Financial Losses Due to Criminal and Regulatory Investigations
Simply put, Directors Insurance is a liability insurance policy that protects directors from financial losses due to criminal and regulatory investigations or trials. These types of lawsuits are usually filed as a result of corporate malfeasance misconduct or negligence on behalf of a company's board members. For example, if a director has signed off on an unscrupulous deal like accounting fraud, she can be sued for her participation in such activity.
In general, Directors Insurance and officer's liability insurance cover three main types of lawsuits those that claim directors breached their fiduciary duty to shareholders; those arising from injuries to third parties caused by a director's negligence or intentional Business Liability Insurance Canada misconduct, and lawsuits brought against a director due to her/his violation of criminal law. Intentional illegal acts, however, are typically not covered. As such, if you've signed off on a deal that knowingly violated securities laws, you can expect to be sued for your participation in such an agreement. Directors are required by law in most countries to disclose any potential conflicts of interest that may arise during board meetings.
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