III Exam| IC 74, Liability Insurance | One Liners| Directors and Officers Liability| Chapter 9
The Liability Insurance (IC – 74) is a paper in III exam for Non Life Insurance. The Liability Insurance (IC 74) is a optional paper and it comprises of 30 Points. This is the most important paper in III Examination, and most people prefer this paper.
This paper comprises of 100 Multiple Choice Questions. Aspirants need to score 60% in this paper to qualify for Licentiate.
We are providing CHAPTER – 9: Directors and Officers Liability one-liners of this paper practice of Non Life Insurance (IC – 74) which will be very important from exam point of view. This one-liners is very easy to understand.
♦CHAPTER – 9: Directors and Officers Liability
- Directors And Officers Liability Policies Are Popular In The UK, USA And Other Developed Countries. These Policies Are Relative New In India.
- Needs for Directors and Officers Liability Policy–
- Directors and Officers of Companies Hold Positions of Trust. They Have Responsibility Of Their Co, The Shareholders, The Employees And The Public At Large. They May Become Liable To Pay Damages For Wrongful Acts Such As Failure Of Supervision Of The Affairs Of The Company.
- The Duties of Directors Under The Companies Act Relate To Prudent Management Of The Com. The Duties Can Be Delegated To The Members Of Management.
Directors And Officer May Be Liable To:
- Employees: For Unfair Dismissal Etc.
- Shareholders: For Imprudent Expansions or Loans Or Investments, Etc.
- Creditors: For Misrepresentation Of Financial Conditions Etc.
- Government Regulators Bodies: For Breach of Legislation Etc.
- Members Of Public: For Financial Loss Following Reliance On Incorrect Or Inadequate or Negligent Statement of Financial Condition Etc.
- Policy Designed To Provide Protection To Directors and Officers of A Co. Against Their Personal Liability For Financial Losses Arising Out Of Wrongful Acts or Omission In Their Capacity As Directors or Officers.
There is no Standardized Policy Forms.
- Discovery Period- Means The Period Of Time Specified In The Policy, Immediately Following Termination Of Policy During Which Claim Notification May Be Given By Insured To Insurer For A Wrongful Act Occurred Prior To Expiry Of Policy. Loss- Mean Legal Liability Of The Directors Or Officers To Pay Damages Or Costs Awarded Against Them & Costs And Expenses Incurred By The Directors Or Officers With The Written Consent of Underwriters In Respect Of Investigation, Defence Or Settlement Of Any Claim.
- A Wrongful Act Shall Mean Any Actual Or Alleged Breach Of Duty, Breach Of Trust, Neglect, Error, Misstatement, Misleading Statement, Omission, Breach of Warranty Of Authority Or Other Act Done Or Wrongly Attempted By Any Director Or Officer.
- Claim Shall Mean: Any Writ Or Summons Issued Against Or Served Upon Any Director Or Officer For Any Wrongful Act or any Written Communication Alleging A Wrongful Act Communicated To Any Director Or Officer.
There Are Two Insured Under The Policy:
The Directors and Officers Of The Co. and The Company Itself
- Insuring Clause: Underwriters Agree, Subject To Terms ,Conditions, Limitations And Exclusion Of This Policy To:
- Pay On Behalf Of The Directors Or Officers Of The Company: Loss Arising From Any Claim First Made Against Them During Period Of Insurance And Notified To Underwriters During Period Of Insurance By Reason Of Any Wrongful Act Committed In Capacity Of Director Or Officer Of The Company Except For And To The Extend That The Co Has Indemnified The Directors Or Officers.
Pay On Behalf Of the Company:
- But Only When And To The Extent That The Company Shall Be Required Or Permitted To Indemnify The Directors Of Officers Pursuant To The Law, Common Or Statutory, Or The Memorandum And Articles Of Association. This Coverage is Known As ‘Company Reimbursement Provision’.
- Exclusions: Where Legal Action Or Litigation Is Brought In A Court Of Law Within The Excluded Territories Stated In The Schedule.
- Any Actual Or Alleged Bodily Injury ,Sickness, Disease Or Death Of Any Person Or Any Actual Or Alleged Damage To Destruction Of Any Tangible Property, Including Loss Of Use Thereof.(This Is Subject Matter Of Public Liability Policy).
- Claims Brought About By Individual Or Entity That Owns More Than A Specified Percentage Of Share Capital. This Exclusion as Major Shareholder Exclusion.
- The Directors And Officers And The Co. Shall Give To Underwriters Written Notice As Soon As Practicable Of Any Circumstances Of Which The Directors Shall Become Aware Which Might Give Rise To A Claim Against The Directors Or Officers, Giving Reasons Of The Anticipation Of Such Claim, With Full Particulars
As To Dates and Persons Involved.
- The Directors & Officers And The Co. Shall Give Underwriters Such Information And Co-Operation As Underwriters May Reasonably Require And Shall Not Disclose To Anyone The Existence Of The Policy Without Underwriters Consent, Unless As A Consequence Of The Requirements Of The Law.
- Underwriters Shall Not Settle Any Claim Without The Consent Of The Directors Or Officers Or The Co. If However The Directors Or Officers Or The Co. Shall Refuse To Consent To Any Settlement Recommended By The Underwriters And Shall Elect To Contest Or Continue Any Legal Proceeding In Connection With Wuch Claim.
- The Policy Is Subject To Deductible. However Generally No Deductible Is Applied For Coverage A And Deductible Is Applied Only The Co. Reimbursement Cover.
- Representation At Investigations And Examinations: Reasonable And Necessary Cost, Fees And Expenses Incurred With Prior Written Consent Of Insurers For Legally Required Attendance By Any Director Or Officer At Any Official Investigation, Enquiry Examination Or Similar Such Proceedings
- Outside Directorships: This Extends The Cover For Directors/Officers Of The Company While Serving As Director/Officer For Any Other Company, Organization, Institute Or Society Provided Such A Position Is Held At The Specific Request Of The Co. This Extension Is Usually Subject To Other Company not Having Insurance Coverage or Is Unable to Indemnify The director.
- Employment Practices: Cover For Claims Concerning Past, Present Or Prospective Employee Of The Company And Arising Out Of Actual Or Alleged Unfair Or Wrongful Employment Practices Like Discharge, Dismissal ,Termination, Failure To Promote ,Wrongful Deprivation Of Career Opportunities Etc.
- Libel and Slander: Provides Cover For Wrongful Acts By Reasons Of Words-Written Or Spoken By An Insured Person
- Infringement Of Fir: Cover For Unintentional Infringement Of Copyright ,Trademarks, Registered Design Patents Or Any Plagiarism Or Breach Of Confidentiality.
- Blanket, Subsidiary Cover Or Auto Acquisition Of Subsidiaries: Cover For Subsidiaries Created Or Acquired By The Company During The Period Of Insurance
- Pollution Defence Cost Extension: Defence Costs And Expenses For Pollution Related Claims Which Is Normally An Exclusion Is Included As Coverage.
- Claims Extends To Include Liability Arising Out Of Joint Venture
- Provides Cover Against Claims Brought By Investors Against The Co Or Directors Following Public Offering By The Company. This Cover Can Also Be Taken As A Standalone Policy Under “ Public Offering Of Securities Insurance(Posi)”Policy.
- Extended Reporting Time For Insured Persons: This Provides For Extended Time For Reporting The Claims Which Have Occurred After Retroactive Date And Before Expiry Of Policy Period.
- Insured vs Insured Cover: Claims Brought Out by One Director against another Director Is Normally Excluded Under The Policy. This Exclusion Can Be Deleted Through This Extension.
- Kidnap Response Cover: Cover for Costs Associated With Kidnap for Ransom or Distortion. This Cover Is Also Provided By Certain Insurers On Standalone Basis As Kidnap And Ransom Insurance Policy.
Proposal Form: Always Required for This Insurance and It Must be accompanied By:
- Latest Audited Accounts of The Company And Nay Holding Or Subsidiary Companies.
- The Income Tax And Wealth Tax Return Of The Last Three Years Of The Concerned Directors And Officers Proposed For Coverage.
- Detailed Information Is Also Elicited On The Changes In The Capital Structure In The Last Year, Any Acquisitions Or Mergers Effected Or Contemplated.
- List Of Shareholders Owning 15% Or More Shares In The Company, Gross Receipts Or Assets From Business In USA Or Canada Is Also Sought To Know The Global Exposure.
- Rating: The Premium Is Chargeable Under D & O Policy Is Based On The Limit Of Indemnity And The Policy Excess Opted
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