What are some of the main exclusions on the D&O policy?
Dishonesty or fraud, questionable payments, copyright, professional indemnity, illegal profits or gains, injury, sickness, damage to property and bodily injury, and deliberate acts.
What are some typical claims examples on a D&O policy?
Common examples include:
- Minority shareholders allege that Directors have abused their position in order to favour certain dominant/main shareholders.
- Competitor alleges that the defendant Director (former employee) has misappropriated trade secrets and confidential information.
- Class action complaint from outside investors stating that Directors failed to disclose material information, which could have highlighted that the company would eventually be liquidated.
- Creditors allege that directors utilised the plaintiff’s services for the company although the said Directors were aware that the company was insolvent and would not have the ability to pay.
As a Director, if I retire (or just leave), can I be sued say 3 years later by the current Directors? Yes, but you MUST ensure that you have the right policy in place as many do not cover Director VS Director. The policy that is in force when the erstwhile directors decide to sue must respond, not the policy that was in force 3 years ago. So, if you retire/leave make sure a policy remains in force/is renewed or insist on “run-off”.
Are directors jointly liable for the actions of their fellow Directors? Yes. Even if your engagement was for a different expertise than the defaulting Director/s. Therefore, your limit of Indemnity must be sufficient.
Is the policy limit of Indemnity “per Director” or in the aggregate for all Directors? For most policies it is in the aggregate, but your broker can get an ‘each and every’ claim limit by special arrangement.
How much cover should I buy? Your broker would need to consider your risk but for example, a single day in high court will cost around R 250 000.
Am I covered if I’m sued by a major shareholder? Some policies don’t provide cover or exclude claims from shareholders with more than 15%, 25% or 50% stake so, again, ensure you have the right policy in place.
The risks in Africa are ever increasing in the D&O space. Please ensure your broker is a specialist in this type of cover.