Primer on D&O insurance

MANILA, Philippines - What is directors and officers (D&O) Insurance?

D&O insurance covers the director and officer for personal liability, which arises from the management of a corporation. It aims to protect the director and officer’s personal assets when they are alleged to have made decisions or actions that yielded unfavorable results.

Who are covered?

D&O insurance covers the past, present and future directors and officers of the company.

What does it pay?

The corporate insurance covers defense costs; damages awarded against the director or officer by a court of competent jurisdiction • Settlements negotiated with the director or officer’s insurer’s consent.

Where can a director or officer be sued?

A director or officer can be sued in the Philippines or where business is incorporated; or outside of the Philippines–e.g. where the investor or customer resides, other countries where the stocks are traded or where the products and services are delivered.

Who can sue the director or officer?

Those who can sue are foreign and local shareholders/investors, employees, customers, regulators, creditors, suppliers, and liquidators and receivers.

What is the scope of the claims?

The scope of the claims are: only the director/officer is protected. It does not cover the company liability. Other options to include entity/company liability for employment practices and securities claims only; administrative proceedings – legal compulsion to attend; defense cost cover; no wrongful act but an inquiry is conducted; civil and criminal proceedings; in case of acquittal – defense cost claimable against the policy; in case of conviction – defense cost should be returned to the insurance company as criminal acts cannot be insured.

It protects the personal assets of the directors and officers and those of their spouses and estates; protects the balance sheet of the company; attracts and retains qualified outside/independent directors; and ensures funds are available for the defense of the directors and officers when the company resources are not available.

Some examples of claims are breach of contract, fire safety regulations, misconduct and discriminations.–  Courtesy of AIG Philippines Insurance Inc.