There are hundreds of possible offences or mistakes that a company or director could be held responsible for – ranging from violations of the Bribery Act and environmental legislation, to health and safety regulations and financial reporting requirements. Claims can come from many different sources, including shareholders, suppliers, customers, government agencies, employees and investors.
In India most of the Directors are appointed as per the directive of Registrar of Companies Act. The regulation enforces a resident Indian director to be appointed on the board. The share/ stake held by this Indian resident director shall be very negligible, but The Indian resident director will be a signing authority in all statutory and legal documents as the role demands. The position brings in lots of legal liabilities along with it.
The directors & officers liability policy addresses the following challenges:
Dishonoured Cheques:
As per Section 138 of the Negotiable Instruments Act, a cheque bounce for an insufficient funds is an offence and punishable with imprisonment. A Director or Officer cannot sight negligence for any liability claims coming against them. If a director does any such act, he can be held criminally liable along with the company for this action. Management Liability (D&O) Insurance covers such instances.
Employment Practices Liability Cover
A disgruntled employee can shake the foundation of a company by lodging a case against the Founders or Directors saying racial discrimination, mental harassment, sexual harassment, wrongful termination etc., These kinds of legal cases can be costing multiples of CTC or even go up to few crores of Indian Rupees. At times the supervisory functions can cause certain errors that can boomerang on the directors, example; a human resources person not following protocols in termination. A director cannot plead innocence for his subordinates’ act, Criminal liability can be imposed on a director if there is a breach of any labour law under his supervision. A directors & officers liability protects the directors and his subordinates in supervisory functions for an act of negligence. download avg internet security 2018
Bankruptcy Coverage
Bankruptcies are now common in the country, so an entrepreneur has to plan for all the possible outcomes of a business. In the event of a pink slip, this liability insurance will legally defend the Directors or key decision-makers of the company. When you buy directors & officers policy do check for financial insolvency clause. D&O policies sometimes, don’t cover financial insolvency If the financials are not strong in the balance sheet. Always check with your consultant whether this benefit is given in the policy.
Life Time Cover
Liability claims can pop up even after leaving the company. Directors & Officers policy shall cover the retired directors for a lifetime under extended reporting period benefit.
For getting this cover the company should continue with the D&O cover as long as it is operational.
Personal Assets and Legal Heirs Protection
Nobody will be ready to lose their personal hard-earned assets for a legal case that comes up while discharging their duties in a managerial capacity. Assets and Legal heirs of the Directors or Officers are defended through this liability insurance.
Conclusion
It is wise to consider buying Directors & officers Liability Insurance, the consequences of the strategic decisions taken by its directors grow in importance as the company grows, so does the potential for costly mistakes by Directors!
A lot of companies think that in Indian market there is no need for a Directors & Officers Liability Insurance. The myth is that these liability claims arise only in big multinational companies and not in mid-size or start-up companies.
The reality is different, the small and medium enterprises are prone to such claims, as the company’s key focus will be on business development and not seeing every business activity from a statute or from a legal angle as compared to MNCs, who have a strong legal frame work to mitigate these claims. The D&O policy is not an expense but a value addition to your business.
