Focus On Running The Company with Directors & Officers Liability Insurance

Being a company director or officer makes you vulnerable to allegations of wrongful acts in the course of doing your job. Fear not, this policy protects you from claims made against you by third parties — no matter the size of your organisation.

Directors and Officers Liability Insurance (D&O Insurance) protects directors and officers against allegations of wrongful acts or breach of duty while they are acting on behalf of the company.

Examples of lawsuits that it covers: 1. Dissatisfied clients/business partners who sue you 2. Angry shareholders who sue you 3. Disgruntled employees who sue you 4. Investors/Limited Partners who sue you This insurance will pay for: 1. Lawyer’s fees and other legal expenses 2. Legal compensation awarded (damages and settlements)

Who does this insurance cover? 1. Company Directors 2. C-Suite Executives – CEO, COO, CFO, CTO, etc.

What does Directors and Officers Liability Insurance cover? D&O Liability Insurance is made up of 3 “sides”: A, B, and C. These sections of the policy protect your company and you from various legal threats in Singapore.

• Directors & Officers Liability (“Side A”): Coverage for your personal assets if your company does not indemnify you.

For example, if you retire as a Director, you will likely not be eligible for company indemnification. Or if your company goes bankrupt, it also cannot indemnify you. This side of the D&O policy will protect you.

• Company Reimbursement (“Side B”): Coverage for your company.

If you are sued as an active Director/Officer, your company will likely pay for your legal fees and damages. This side of the D&O policy will then compensate your company for the legal expenses and damages paid out.

• Entity Securities (“Side C”)”: Coverage for publicly-listed companies.

This side of coverage only applies if your business starts trading shares on the stock market in the future.

For instance, if your company issues an unsuccessful IPO, and is sued by unhappy shareholders, this side of the D&O policy would protect you. Examples of D&O insurance coverage for small business under Sides A, B and C:

• Breach of fiduciary duty lawsuits: Coverage for allegations of putting own interests ahead of shareholders.

• Breach of contract lawsuits: Coverage for allegations of not fulfilling terms of business contracts.

• Shareholder oppression lawsuits: Coverage for allegations of causing harm to minority shareholders.

• Negligence lawsuits: Coverage for allegations of professional errors & omissions that caused bodily injury, property damage, or financial losses to clients.

• Defamation lawsuits: Coverage for libel and slander.

• Employment practices liability lawsuits: Coverage for acts like wrongful termination, harassment, or employment discrimination.

Other specialised coverage:

• Pollution: Cover defense costs for pollution lawsuits.

• 100% Subsidiary Protection: Coverage for all your company’s subsidiaries.

Why do I need to purchase D&O Insurance? When you are sued as a company Director or Officer, your house, your car, and other personal assets are exposed to expensive lawyer fees and damages. These lawsuits could come from almost anywhere. Without D&O Liability Insurance in Singapore, whether you are running a small business or a multinational one, you are vulnerable to be on the hook for hundreds of thousands or even millions in lawyer fees and damages.

It is thus absolutely important to have a Directors & Officers Liability policy in place to prevent losing your precious assets. Litigation costs are often extremely expensive, so paying a small annual fee in exchange for generous legal protection is highly recommended.

Think about these points if you're still considering the purchase of D&O insurance:

1) You have a very poor chance of winning the lawsuit... statistically

If you’re a company Director/Officer, you have about a 1 in 4 chance of winning lawsuits targeting you. On the highly probable chance your lawyers lose, do you want an insurance policy to pay your costs?

2) You will lose your personal assets

Are you willing to use your personal savings, sell assets like your home, or take out expensive bank loans, to pay for lawyers and damages if you’re sued? 3) Availability of large company cash reserves

Does your company have significant cash on hand (at least $1-$2 million) to pay for lawyers to defend all your Directors & Officers, plus legal damages if you lose the case? If the cash is available, would it be better spent in fighting endless legal battles, or invested in growing the company?

How much D&O Insurance should I have in Singapore? When deciding on cover levels, remember that your D&O policy must have sufficiently high indemnity to pay for these factors:

• Lawyer fees and damages: Whatever you claim for legal expenses reduces the policy’s remaining payout for damages.

• Defend multiple claims: Plaintiffs’ lawyers will often file multiple legal claims in order to increase their chances of winning.

• Protect all Directors & Officers: If you have multiple Directors/Officers being sued for a common claim, each person may require their own legal representation. So, your indemnity must cover multiple lawyers’ fees and numerous counts of damages.

• Typical Lawsuit Duration: Your policy should cover for at least 2-3 years of lawyer fees.

• Worst-Case Scenario: Think about the size of your contracts and your company. What’s the biggest amount you might get sued for?

• Number of Employees: The bigger your company, the greater the chance that your employees may commit wrongs that your Directors & Officers are ultimately found liable for!

What's the difference between Directors and Officers Liability Insurance VS Professional Indemnity Insurance? Professional Indemnity policies protect your company from errors & omissions.

Directors & Officers Liability policies protect senior management from managerial mistakes.

For example, you run a financial advisory firm. Your employee makes a series of poor investment decisions and cause massive losses for your clients. In this scenario, your clients could file two separate lawsuits against you:

• Your company is sued for Professional Negligence: a Professional Indemnity policy will cover this.

• You get sued as a Director/Officer of your company for Professional Negligence: This is where the D&O Liability policy comes in.

It is advisable to combine both of these policies for maximum coverage.

Directors and Officers Liability Insurance is written on an annual basis, with both customised and packaged plans available. Contact us today and we'll get you started!