The demand for Directors & Officers (D&O) Insurance in India has been rising, as directors are increasingly being held accountable for their management decisions. While a company's liability is limited by shares

Things a Directors should be conversant about his / her Director & Officer (D&O) Policy: An Universal Approach 1. How much Insurance do we have? How much do one need? There is no exact science for determining the limits of D&O insurance a particular company should maintain. However, reputable commercial insurance brokers and other vendors have developed benchmarking data based on market caps, annual revenues, industry etc. that provide insight regarding how your company's limits stack up against similar / peer companies. You should ask the individual responsible for placing your D&O insurance for this data and review it to determine where your limits are at versus your peer companies. Ask questions if there are deviations in your limits versus those of your peers. 2. Who shares the Insurance Policies? D&O insurance often covers all directors, officers and employees, as well as the company. This means that significant claims against the company and employees may deplete the limits available for individual officers and directors. You should determine if there are certain limits available only to directors and officers and whether your coverage contains a "priority of payments" clause that provides that in the event of claims against both the directors / officers and the companies, losses attributable to the directors /officers are entitled to payment before losses of the company. 3. When is coverage triggered? D&O insurance coverage triggers have become much broader in recent years. In addition to coverage for lawsuits by shareholders, policies often now cover individual directors and officers for investigations by regulatory bodies, upon receipt of a summons etc. Therefore, one should inquire, particularly with respect to regulatory body investigations and summons, at what point coverage is triggered. 4. What is covered under the D&O Policy? In addition to defence costs and the costs of settlements/judgements arising from shareholder actions, many policies now cover attorneys' fees and other expenses related to responding to both formal and informal investigations and summons. Again, one should inquire at what point one coverage is triggered and what costs associated with such events are covered under one policy. 5. Who are Insurers? One has to look their claims paying ability ratings issued by reputable independent ratings services. The individual responsible for procuring one coverage need to be consulted if they have had a conversion with your insurance broker regarding the claims payment philosophy of the insurers, and what those insurers' reputations are in the marketplace when it comes to claims handling procedures. 6. How do other Insurers impact coverage? Take concern what happens to the coverage if another insured engages in fraud or criminal activity, but one is still named as a defendant in a lawsuit. Make sure that the bad acts of a 'black hat' don't negate one coverage. Also, ask what happens to your coverage if someone else makes a misrepresentation in the application for the D&O policy. Try to ensure that someone else's misstatements don't lead to your loss of coverage. 7. What is not covered? Make sure you understand significant exclusions in your policy (exclusions for major shareholders, M&A activity, etc., are becoming more common). Have your policy reviewed by an outside professional to determine the scope of items that may not be covered under the policy. 8. How to protect in a Crisis? Understand the claim notice requirements under the policy. One of the worst things that can occur is a loss of coverage due to inadequate or untimely notice. 9. What is Side A Insurance and why is it needed? Side A coverage is effectively the last line of defence against a director or officer having to pay their own costs related to a claim. It kicks in when the company is unable to provide indemnification (usually due to bankruptcy or a statutory prohibition on indemnification). Therefore, it is one of the most important coverages for individual directors and officers, as it directly protects against loss of personal assets as a result of claims. 10. What is Independent Director insurance? Independent Director insurance has been around for some time and provides a separate set of coverage limits dedicated solely to independent / outside directors of a company. To date, it has been purchased by very few companies. Generally, if adequate Side A coverage is already in place, this coverage should not be necessary.