'In today's environment, directors and officers are exposed to risk of personal financial loss as a result of serving a Director or Officer of the Companies' Discuss the statement and also elaborate on tools available fo

It is true that in today's environment, directors and officers of companies are exposed to risk of personal financial loss as a result of serving as a Director or Officer of the Companies. There are risks involved in business decisions they make while discharging their duties. These risks exposes the Directors & Officers to the risk of liabilities and litigation. The business environment now a days is uncertain. Therefore it is advisable to use the tool of 'Director & Officer' Liability Insurance. Directors & Officers (D&O) liability insurance is insurance coverage intended to protect individuals from personal losses if they are sued as a result of serving as a director or officer of a business. It can also cover the legal fees and other costs the organisation may incur as a result of such a suit. Directors and officers liability insurance can be obtained for who serves as a Director or an Officer of any organisation including Non-profit organisation. Directors may also face liability under Income tax, Forex laws, SEBI, PF and Shops and Establishment Act etc. D&O policies can take different forms depending on the nature of the organisation and the risk it faces. Ideally one should choose an Insurance company with deep experience in this specialised field. The Policies are generally purchased by the organisation to cover a group of individuals rather than individuals themselves. Policies can be written to insure against a variety of hazards but they generally make exclusion for Fraud and other criminal activity. The advantages of having such a policy may be summed up as follows: Protects personal assets of Directors and Officers from risk of loss caused by breach of their duties, while acting in good faith Saves legal and other expenses incurred in litigation If investors believe that they have suffered losses due to mismanagement of the company they could approach the court for compensation. Employees may sue directors for their wrong decisions. Customer can take legal actions for misrepresentations made in the advertisement materials and deceptive trade practices. Enquiries may be initiated by regulatory authorities like SEBI/ Revenue dept., can sue losses to directors In case of Bankruptcy or Insolvency creditors may take action against the directors in their personal capacity. Having a D&O policy, helps the organization in retaining / attracting talent. By having a D&O policy, we can cover losses caused to company on the above mentioned circumstances.