Directors & Officers Liability Insurance can safeguard the assets of the corporate entity, as well as the personal assets of your firm’s directors and officers, including your Chief Compliance Officer.
Directors & Officers are often held personally liable for the decisions they make on behalf of their public or private company. As a director or officer with an organization, s(he) must exercise the Duty of Loyalty, the Duty of Obedience, and the Duty of Diligence.
Duty of Loyalty exemplifies that a director has put the interest of the corporation above his/her own.
Duty of Obedience portrays a director's actions have conformed to the corporate charter and by-laws of the corporation.
Duty of Diligence in the management of the corporation and done in an expedient and knowledgeable manner.
In fulfillment of the above duties, a director and/or officer is required to exercise reasonable care and due diligence, place the interest of the corporation and its shareholders foremost in the decision-making process and not exceed his or her authority.
The most traditional type of directors' and officers' coverage is for claims against individual directors, officers, and the collective board.
The second traditional coverage, and most frequently used, is for corporate reimbursement, which funds the indemnification of individual directors & officers as provided for in the corporate charter or by-laws. Given this situation, generally the organization's by-laws must operate first with respect to indemnification (making directors & officers "whole" again). In a covered claim situation, the insurance policy would reimburse the corporation after the deductible has been paid (i.e. retention) and up to the policy limit.
A third coverage area, known as the entity coverage, developed later than above two coverages. It applies to claims against the corporation itself primarily for alleged securities violations. A sharp drop in stock value can trigger a class action lawsuit against individual directors & officers, the entire board and the corporation itself. Electronic trading has caused a rapid growth in this type of claim.
Directors & Officers Liability Insurance offered through Mercer Consumer covers all three types of these exposures.
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