Directors and officers (D&O) liability insurance protects directors and officers from legal liabilities arising from their managerial duties. Some key risks include regulatory investigations, shareholder lawsuits, and employment claims. Successful claims can cost millions in legal fees and damages. It is important for companies to carefully consider their D&O coverage needs, key policy terms and exclusions, and ongoing risks from mergers or director retirements. Purchasing adequate D&O insurance can help protect personal assets and support good corporate governance.

1. D&O Liability
Protection of Personal Assets
Ram Garg CFA, MBA
Practice Leader – Financial & Casualty Line
J B Boda Singapore

2. Disclaimer
The information provided should not be relied on as legal advice or a definitive
statement of the law in any jurisdiction. For such advice, an applicant, insured,
listener or reader should consult their own legal counsel.
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3. Directors’ Duties and
Legal Framework
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4. D&O Insurance
“A study sponsored by McKinsey shows
that 36% of corporate directors polled
actually admitted that they did
not fully understand the risks faced by their
company…others may have had their
doubts but did not like to say so”
Economist, Jan 24, 2004
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5. Legal liabilities of Directors & Officers
 Directors of a company have several duties and
liabilities imposed on them under various provisions of
the law
 Duties can be found under common law and statutes.
Statutes such as the Companies Act impose on
directors the duty to act with care and skill
 If directors are held to be personally liable, they would
have to defend and pay the damages on their own
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6. Legal liabilities of Directors & Officers
Regulators in Asia are more
active and focusing on;
– Transparency and disclosure
– Financial reporting
– Board practice
All above factors deriving greater expectation
of best corporate governance practice
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7. Directors’ & Officers’ Liability Insurance
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8. What is D&O Insurance?
D&O Insurance provides indemnity for the
Individual Directors and Officers of a
company against their legal liability to pay
damages to third party claimants as a
consequence of the third party having
suffered financial loss through the
negligent act, error or omission of the
Director or Officer in his/her “managerial
capacity”.
In other words, it is a “Managerial
Negligence” cover
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9. D&O Insurance – Insured Persons
– All Past, Present and Future Directors and Officers (Ds&Os) of
the
 Insured Organisation; and
 Its Subsidiaries
– In relation to Employment Practices Liability claims, all
employees
– Spouses and legal representatives of Ds&Os for Wrongful
Acts committed by said Ds&Os
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10. D&O Insurance - Structure
Claim or allegation made against Directors or Officers (D&O’s)
Claim or allegation notified to Underwriters
Q: Can and will the Company indemnify the D&O’s?
No Yes
Insurers advance Costs and
Expenses to the D&O’s under the The Company advances Costs and
D&O Section of the Policy Expenses to the D&O’s
The Company recovers their outlay under
the Company Reimbursement Section
EXCESS OF THE DEDUCTIBLE
Liability of the D&O’s is finally determined through the
courts or settlement negotiations involving D&O’s,
The Company and Underwriters
Q: Is the Company legally able to indemnify the
D&O’s for their liability?
No Yes
Insurers indemnify the Company under
Insurers indemnify the D&O’s under the Company Reimbursement
the D&O Section of the Policy Section
EXCESS OF THE DEDUCTIBLE
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11. Claim Scenarios
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12. Claimant Ranking
1. Third party (30-50%)
2. Regulatory/Gov Body (10-30%)
3. Employees (20-30%)
4. Miscellaneous (10-20%)
5. Shareholder (Below 10%)
Source: various figures from different D&O insurers within Asia region
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13. Common types of claims
a) Shareholders: mismanagement, decline in investments,
performance of the company,
misrepresentation in offering documents, bad
investment decisions
b) Employees: employment practices claims such as
discrimination, harassment, libel and slander,
improper working conditions
c) Investors: misrepresentation and misleading information
d) Competitors: unfair business practice, libel and slander
e) Regulators: breach of statutory provisions, market
misconduct
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14. D&O Claim by Regulators
1. Market Misconduct:
(a) Insider trading
(b) Price rigging
(c) False trading
(d) Market manipulation
(e) Disclosure of false and misleading information
2. Directors breaches of Statutory Duties
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15. Real Claim Examples
Industry Public Company
Coverage Section Directors’ & Officers’ Liability
Cause of Action Investigation
Type of Organisation Minerals Processing
Number of Employees 112
Revenue $25 million
DESCRIPTION OF EVENT
The Financial Regulator ('The Regulator') issued notices to attend interviews to four directors and officers
of the insured minerals processing company. The Regulator was investigating disclosures regarding the
effect of falling commodity prices on the company’s balance sheet.
RESOLUTION
The D&O insurer’s dedicated claims specialist met with the directors prior to the interviews to discuss the
investigation and appointment of counsel. Counsel were appointed from Insurer’s panel at discounted
rates.
Counsel met with the insured persons prior to the interviews and attended the interviews with them. The
insured persons were able to adequately answer all concerns and the investigation ceased after the
interviews.
D&O Insurer paid $30,000 in Investigation Costs in excess of the deductible.
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16. Real Claim Examples
Industry Public listed Company
Coverage Section Directors’ & Officers’ Liability
Cause of Action Investigation
Type of Organisation Telecom
Number of Employees More than a thousand
Revenue NA
DESCRIPTION OF EVENT
A large publically listed company based in Philippines, held a management meeting in Hawaii and flown
key executives to attend same. After meeting was over, US Federal Communication Commission initiated
investigation in relation to possible violation of anti-trust law.
RESOLUTION
Key executives of the company had to defend themselves in US district court in Hawaii. The company
came out clean but incurred legal cost in excess of USD 4 million during the whole episode.
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17. Real Claim Examples
Industry Private Company
Coverage Section Directors’ & Officers’ Liability
Cause of Action Breach of Child Labour Laws
Type of Organisation Retailer
Number of Employees 11
Revenue $250,000
DESCRIPTION OF EVENT
The insured owned and operated a number of newsagencies. The insured employed a number of part-
time staff, which included several teenage school students.
The insured was investigated and subsequently charged with various breaches of child labour laws,
including a failure to obtain the consent of the teenagers’ parents to their employment.
RESOLUTION
The insured was fined $15,000 and incurred legal costs of $18,000. The fines and costs were covered by
the policy.
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18. Real Claim Examples
China Aviation Oil (Singapore) Corporation Ltd
China Aviation Oil, a Chinese Govt owned company listed in the Singapore
Exchange suffered US$550 million in losses from speculative oil derivatives
trading. The losses came to light after China Aviation Oil filed for court protection
against its creditors in November 2004. CEO was arrested.
Investigation was undertaken by the Commercial Affairs Department (CAD).
In January 2005, Class Action law suit filed in the US by US investors.
.
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19. D&O Claims – In India
 Regulatory Claims
 SEBI fined Reliance Industries (RIL) in a case related to violation of Sebi’s takeover
regulations with respect to RIL’s holding in cement and engineering major L&T.
D&O policy doesn’t pay fines and penalty but investigation cost related to such
claims can be substantial and this can be covered under D&O policy.
 Shareholder’s Claims
 A public interest litigation was filed by a JPIL shareholder alleging violation of
takeover code by the company. The shareholder has alleged that during 1999-
2000, the promoters of JPIL, Jaiprakash Gaur ' and his associates, had acquired
10% of JPIL shares in 12 months without making a public offer. This is in violation
of the SEBI takeover code which allows creeping acquisition only up to 5 per cent
during any 12 months.
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20. D&O Claims – In India
 Business Partner’s Claim
 ICICI Bank lodged a claim under their D&O policy for INR 250 million as an
outcome of an ongoing legal battle initiated by Commerzbank. The case is related
to funding of the Arvind Mills by ICICI Bank. Commerzbank which was also part of
the consortium had objections to this funding. The claim filed under D&O policy for
recovery of legal expenses.
• Employment Practice Related Claim
An ex-employee of Infosys in US filed a Sexual Harassment case against the
Company and its former Director . The case was settled out of Court for US$3 MN.
D&O underwriters paid for the Director’s Damages and the defence costs.
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21. D&O Claims – In India
 Ex-Director’s Claims on Subhiksha Case
Premji Invest, a private equity fund owned by Azim Premji, the billionaire chairman
of Wipro Ltd, admitted that they were taken for a ride on Subhiksha. Investment
banking sources said the private equity firm was understood to have said it was
misled on the true financial position of Subhiksha, which has prompted it to send
notices to the other directors on Subhiksha’s board.
• Coca Cola Sexual Harassment Claim
Miss Universe and film star Sushmita Sen alleged that she was sexually harassed
by the marketing head of Coca-Cola India. Sen made the allegation soon after
Coca-Cola terminated its celebrity engagement contract with her. She alleged this
was being done because she had rejected the sexual overtures of a senior Coke
official. Sen’s lawyers also claimed sum of INR 14.5 million by way of
compensation for sexual harassment should be paid by way of charity to an
orphanage of our client’s choice. The sum has since been paid by Coke.
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22. D&O Insurance
Issues & Key Consideration
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23. Role of Senior Managers
 In today's volatile market conditions, adequate D&O cover for senior
managers is essential
 Regulators and politicians are now holding individuals accountable, so
Directors are more acutely aware of their personal vulnerability
 As a result, directors and other executives are more sensitive to risk
than they were in the past
 Executives would do well to take stock of their personal liability
 D&O policy protects personal assets of individual Directors & Officers
and therefore, senior managers must step in to make sure that their
employer purchase effective coverage
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24. Key Issues to Consider
 How much protection do I need?
 Cover is for EACH Director : Limit for Non-Executive Director
 Defense cost issues
 Understand the “fraud & dishonesty” exclusion
 What happens when Directors or Officers leave the company or
retire?
 Pricing - this is a case of balancing a number of factors.
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25. Key Issues to Consider
……continue
 Severability in the Application (Full/partial)
 Cancellation provision of policy?
 Run-off cover in the event of M&A?
 Insolvency issues?
 Erosion of policy limit by claim under Entity section
 ………many more
D&O Policy is a tailor-made
&
All policies are not same
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26. Thanks
Ram Garg
DID: +65-6309 1158
Mbile: +65-8322 9962
E-mail: ram@jbboda.com.sg
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