Globalization and Increased risk of litigation has created a big space for Liability Insurance for Directors and Key Officers, the decision makers. Most Industries can be highly requiring this insurance policy to safeguard them against big legal burdens.

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Directors and Officers Liability

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Agenda
Need for D&O Cover
D&O Liability Insurance – The Product

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News making Headlines

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Need for D&O Policy
 Liability of directors - joint and several
 D&Os can be held personally and financially liable for any negligent
decision or action in the course of managing corporate affairs
 Duty of care expanded from that of a prudent and reasonable man to
that of an expert
 Section 201 – Limited indemnification
 Claims can be made on D&Os even after they retire
 An allegation, however frivolous can require engaging a lawyer to
defend the claim and incur huge defense cost

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Past that was characterised by Now changed to
Risk exclusively thought to be through
US Listing ( ADR)
Exposure emanates from anywhere
(Infosys /Satyam)
Infrequent mistakes by Corporate
management
Regular mismanagement of IPO’s,
financial reporting misrepresentation,
negligence fraud
Neutral legislation Proactive and highly public legislation
Passive attitude by regulatory bodies Aggressive regulatory bodies
Benign shareholder attitude Aggressive shareholder aided by
proactive law firms
Little public awareness Active media spotlight
Fundamental Shift in D&O Insurance

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Recent allegations against D & O in
India
• Adidas, has accused senior officials at Reebok India of perpetrating the
fraud by siphoning off funds The quantum is approximately Rs.870
crore. The Serious Fraud Investigation Office (SFIO), under the ministry
of Corporate Affairs, is currently investigating the case.
• Bharti Walmart has suspended five people, including CFO, as part of
an ongoing global investigation by the US retail giant against alleged
corrupt practices.
• The Children’s Investment (TCI) Fund Management of the UK, the
single largest shareholder of Coal India Limited (CIL) after the Indian
government, has filed a law suit in the Kolkata High Court against CIL
directors for “breach of their fiduciary duties and for failing to perform
their functions with adequate care and skill”.
• Tata Consultancy Services was accused of Breaching employment
contracts and violation of the California Labour Code by two former
employees in US in April 2012

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Agenda
Corporate Scandals – Where did it all Start ?
D & O Liability Insurance – the Product

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Duties of Directors
A Director of the Company shall:
 Act in accordance with the articles of the Company
 Act n Good Faith in order to promote the objects of the
Company for the benefit of its members as a whole,
and in the best interests of the Company, its employees,
the shareholders, the community and for the protection
of the environment
 Exercise his duties with due and reasonable care, skill and diligence and shall
exercise independent judgment
 Not involve in a situation in which he may have a direct or
indirect interest that conflicts, or possibly may conflict, with
the interest of the company
 Not achieve or attempt to achieve any undue gain or
advantage either to himself or to his relatives,
partners, or associates and if such director is found guilty
making any undue gain, he shall be liable to pay an
amount equal to that gain to the company
 Not assign his office and any assignment so made
shall be void
 If the director of the company contravenes the provisions of this section such
director shall be punishable with fine shall not be less than one lakh rupees
but which may extend upto 5 lakh rupees.

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D&O can be held liable for…
Civil WrongsWrongful Acts –
Actual or Alleged
Wrongful Acts –
Actual or Alleged
• Inadequate/inaccurate disclosure, including
financial reporting
• Misuse of inside information for personal gains
• Imprudent expansion Leading to erosion of
Shareholder wealth
• Misuse of corporate funds
• Companies Act violations
• Irregularities in securities issues
• Breach of duty to minority shareholders

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Target Sectors
Aviation Banking
Hospitality Real Estate
Transportation
&
Communications
FMCG Utilities
Pharma
Information
Technology
NGOs
&
Societies
Health
Care
Services
Entertainment
Corporates -Public, Private across
Industry Segments
Negative list:
•None
•But accounts will be declined based on poor
financials and management background
Aviation Banking PharmaAviation Banking

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Who can sue?
Directors & Officers
Employees
Competitors
Regulators
Shareholders Customers
Creditors

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In
Respect Of
Personal
Liabilities
Personal Fortunes of
Individual Directors and
Officers
Arising Out of
Their Wrongful
Acts
An Insurance Cover to Protect...

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Retention
Nil
Retention Retention
A: Directors & Officers
Covers the loss of the
Insured Persons
for any wrongful act
and for which he / she
is not Indemnified by the
by the Company
B: Company
Reimbursement
Reimburses the Company
If it pays the loss
to each Insured Person
C: Company Securities
Covers the loss of the
Company
arising out of a
Securities Claim
Single aggregate limit
Coverage Clause

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Comprehensive coverage…
Un-named D&O
Covers Past, present and future
directors on an unnamed basis
Outside Directorship
Spousal
Covers your spouses, heirs, estates in
your absence
New Subsidiary
Liability arising due to nominated
directorship at the request of the
company
Directors & Officers of Subsidiaries
acquired or created during the policy
period are covered

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Comprehensive coverage…
Employment Practices
Wrongful Act
Wrongful discipline and other HR
Related issues
Crisis Mitigation Costs
Additional Limit for
Non Executive Directors
•If the Limit of Liability under the
Policy is exhausted
•If Any other insurance or source
of indemnity is exhausted
Provides cover for the costs incurred
to hire a crisis mitigation consultancy
to mitigate the risk of a Claim
Deprivation of Assets
Costs
Costs to obtain the discharge or
revocation of a judicial order

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TO
THIRD
PARTIES
To pay compensation
For Legal liability
Arising out of wrongful act committed during policy
period and claim made during policy year
Damages are paid

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INCURRED BY Insured
person
FOR INVESTIGATION, DEFENCE, OR
SETTLEMENT OF ANY CLAIM AGAINST
Insured Person WITH PRIOR CONSENT of
Insurer
Defence Costs are paid

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Damages
Multiple portion of multiple Damages
Defence cost
Pre and Post Judgment Interest
Civil fines and Penalties
Investigation Costs
Subject to Limits/ Sub-limits
Policy covers…

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Major Exclusions...
 Crime, Fraud, Financial Gain to which Insured is not entitled to
Exclusion
 Insured V/s Insured Exclusion
 Future Offering Exclusion
 Professional Services Exclusion
 Bodily Injury/Property Damage Exclusion
 Personal Profit or Advantage Exclusion

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Documentation Required
 Mandatory
 Duly completed Proposal Form
 Stamped and signed proposal form is required for booking only
 Latest Audited Financial Report except in following cases
 In case of listed companies, we will take it from the net
 In case of a company which has not completed one year
 Optional (If available)
 Expiring Policy Copy
 Brokers’ Slip
 In case expiring policy has a claim
 Details of Loss Incident
 Quantum of Loss
 Current Status
 Corrective measures taken to avoid similar claim

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THANK YOU