Directors & Officers Insurance in Australia: Why You Should Review the Policy Before Becoming A Director

Why is D&O Insurance Purchased at the Company Level?

D&O insurance is structured to offer protection for individuals at the helm of an organisation. Since directors and officers make decisions on behalf of the company, the organisation purchases this insurance to provide collective coverage. The policy typically covers defence costs, settlements, and legal fees arising from claims such as:

• Regulatory investigations (e.g., Australian Securities and Investments Commission (ASIC) inquiries)
• Claims of mismanagement (from shareholders, creditors, or employees)
• Breach of duty allegations (including negligence claims)
• Legal defence costs (for proceedings related to corporate decisions)

It’s important to note that typically individual directors cannot purchase separate D&O policies; the coverage is obtained by the company.

Before Accepting a Director Role – Review the Company’s D&O or Management Liability Policy

If you’re considering a directorship, it’s prudent to request and review the company’s Management Liability or D&O policy before joining. This allows you to:

• Assess Coverage Limits: Ensure they are sufficient to cover potential legal costs and claims.
• Identify Exclusions: Be aware of any significant gaps in protection.
• Confirm Coverage Scope: Determine who is covered under the policy (e.g., past directors, committee members, subsidiaries).
• Understand the Claims Process and When to Notify the Insurer: Familiarise yourself with the procedure in case you need to rely on it

Not all ML or D&O policies are the same, and assuming you are covered without reviewing the details can be a costly mistake.

KBI Can Assist with Reviewing or Securing the Right Cover

Navigating D&O insurance can be complex, and ensuring you have the right protection is critical. KBI specialises in providing tailored advice and solutions in this area. We can assist by reviewing existing D&O or Management Liability policies and helping directors secure appropriate coverage if additional protection is required.

If you’re taking on a director role or want to ensure you have adequate cover in place, contact KBI to discuss your options.

For more detailed information on Management Liability Insurance, visit our Management Liability Insurance page.

Disclaimer:

KBI PTY LTD is an Authorised Representative (450152) of KBI Group Pty Ltd (ABN 56 167 437 121, AFSL 494792). Any advice in this article is general in nature and does not take your personal circumstances into account. When considering the purchase of an insurance policy, you should consider whether the advice is suitable for you and your personal circumstances. Before you make any decision about whether to acquire a certain product, you should obtain and read the KBI Financial Services Guide and relevant product disclosure statement.