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As organisations of all sizes, from large multinationals to SMEs, come under increasing pressure they are turning to Directors’ and Officers’ (D&O) liability insurance – or should be!

We live in a litigious society and company directors and officers are increasingly being held personally liable for the wide range of management decisions they make throughout their working day. Claims not only have the potential to threaten the financial viability of the company, but also the personal wealth of individual directors and officers.

Unfortunately, companies are only obliged to indemnify their directors and officers for wrongful acts in limited circumstances. And, even where a company can and does indemnify for a personal liability, who will make good the loss of the company?

A D&O policy will.

So why do companies need Directors and Officers insurance? Put simply: managers make mistakes. And when they do, they may be personally legally liable for them.

Directors and officers constantly walk a fine line. They make tough decisions that can have big impacts. No matter how prudently they act and how strong their business acumen is, their decisions can result in losses for the company or a third party – and the directors or officers who made the decisions may potentially be held liable for those losses and end up involved in costly litigation.

The purpose of D&O liability insurance is to provide protection to directors and officers for defence costs and legal liability incurred for claims and prosecutions against them within the scope of their regular duties for the company.

And it’s not just for the big end of town. It’s essential for companies of all sizes to consider D&O insurance.

D&O policies have traditionally been a regular part of the risk management plans of large multinational companies, but SMEs require the same protection – particularly as their responsibilities become more onerous due to increasing regulation and third party awareness of their duties. Although major publicly listed companies may be at the highest risk of attracting D&O claims, any entity – whether publicly traded or not – has potential D&O exposure.

The source of potential claims is very broad and continues to grow. Claims from employees and regulators are particularly prevalent and may involve anything from unfair dismissal and harassment to work health and safety claims.

Far too many company directors and officers in SMEs are unaware of the potential liability and, as a result, fail to properly protect themselves and their business. That’s why it’s important to consider whether taking out D&O insurance should be part your risk management plan. D&O insurance supports good corporate governance by making the risks associated with decision making manageable.

Emjay Insurance Brokers provides risk management advice and solutions to SMEs of all sizes. They can provide you with the advice you need about Directors’ & Officers’ liability insurance and ensure your business is protected. Contact us today to discuss your needs on (02) 9796 0400.

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