Scenario Explained:

A board member is involved in a conflict of interest, approving a major contract with a supplier where they have a personal financial stake. This is a clear breach of their fiduciary duty to the company and its shareholders. As a result, other shareholders take legal action against the board member, alleging improper self-dealing and seeking damages.

D&O Insurance Coverage:

In this scenario, the D&O (Directors and Officers) Insurance policy would typically provide coverage for the board member’s defence costs, including:

– Legal fees for representation
– Investigation costs
– Other expenses related to defending against the lawsuit

Potential Exclusions:

However, if the lawsuit is successful and it’s proven that the board member intentionally engaged in self-dealing for personal gain, the D&O policy may exclude coverage for the damages or settlements. Insurance policies often have exclusions for intentional, fraudulent, or illegal acts.

Key Takeaway:

D&O Insurance provides protection for directors and officers against lawsuits, but it’s not a blanket coverage. If wrongdoing is proven, coverage may be limited or excluded. This highlights the importance of having a robust D&O policy and ensuring that directors and officers act in the best interests of the company and its stakeholders.