Many companies are unaware of or have considered and rejected the idea of director and officer (D&O) insurance, but past experience indicates that along with liquidity problems, companies and their directors face a heightened risk of litigation during economic downturns.
The usual purpose of D&O insurance is to cover the threat to directors and senior managers that their personal assets will be at risk in the event of litigation. Normally, the company will write a policy to indemnify its officers, and D&O insurance is normally written as an ‘add on’, to cover risks not dealt with by the company’s policy, or as ‘top-up’ cover.
There are types of activity that significantly increase the risk to directors. For example, raising capital by way of share issue or by the issue of public debt is particularly risky. Actions by employees and shareholders are also a risk in some circumstances. The Companies Act 2006 has posed additional obligations on company directors as well.
Check Your D&O; Insurance
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