D&O or directors and officers insurance is an insurance policy intended to protect people from personal losses in case they’re sued because they served as officers or directors in a business or any other type of organization. Besides, it covers the legal fee and other expenses the organization might incur due to the lawsuit.
This form of insurance cover is akin to corporate law, corporate governance, as well as the fiduciary duty owed to the organization’s stakeholders, including beneficiaries and shareholders. The United States federal law grants officers and directors a broad discretion in a broad range of business activities. You shouldn’t forget that corporate law is commonly handled at the state level. All companies traded publicly are often subject to more federal regulation compared to private ones due to the Securities Exchange Act of 1934 and the Securities Act of 1933.
Does it cover settlement for criminal charges?
Any knowledgeable insurance expert will tell you that D&O insurance covers individuals for a broad range of claims or lawsuits for wrongful acts. A more significant number of these policies offer coverage for claims filed on the basis of criminal proceedings.
Whenever a criminal charge is settled against an officer or a corporation, the settlement often includes penalties, fines, expenses associated with the relevant investigations, and any other payment deemed relevant. So, the critical question is: are these payments covered by the directors and officers’ insurance policy?
The answer to this question depends on the details of your policy and the specific state in which you live. Generally, D&O insurance policies take different forms depending on the nature of the organization you work for and the unique risks it faces. Therefore, it’s best to consult with an insurance company or a Toledo criminal defense attorney with a profound experience and a better understanding of this field. Remember, this policy is usually acquired by an organization to cover a group of directors or officers.
In case the organization fails to disclose critical information or knowingly giver inaccurate or falsified details, the insurance company will avoid payment because of misrepresentation. Note that there’s a severability clause included in the D&O insurance policy terms. This clause is intended to protect other insured parties against denial of payments due to another director’s or officer’s misrepresentation. But in some jurisdictions, the severity clause might be ineffective.
D&O insurance policies can be written against different hazards. However, criminal activities, illegal profits, and frau are excluded. Besides, many policies have an ‘insured vs. insured’ clause. That means no claim can be paid if a current or former officer/director sue an organization. Thus, an organization can never profit from a conspiracy or deceit.
The concept of directors and officers’ insurance cover is complex, and you need the help of an insurance expert or an attorney to understand it fully. And in case you are facing criminal charges, and you’re wondering if your D&O policy could help handle the settlement, consult with your lawyer.