Directors & Officers Liability

What Does Directors and Officers Insurance Cover?

Directors' and Officers' insurance compensates directors and officers for loss, including legal costs, where they have committed a 'wrongful act' while carrying out their role as managers of the corporate entity.

A wrongful act is usually defined as an error, mis-statement, misleading statement, conduct, omission, neglect or breach of a duty of care.

This insurance is a personal cover for directors and officers. The only indemnity available to the corporation is for its obligations to reimburse legal costs for its directors and officers should they be found not liable.

Why do you need it?

Not only are there are specific duties and responsibilities imposed on directors as to how they conduct a business, they have more than 600 laws and regulations they must follow. This is on top of the responsibilities imposed under common law and contract conditions. In nearly all circumstances, the individual director or officer will be made personally liable.

Who is covered?

Directors & Officers Liability insurance covers the decisions made by people involved in managing and running an organisation. It is important to note that it covers the individuals not the company. The people generally covered include:

  • past, present & future natural persons
  • a director, secretary or executive officer
  • an employee involved in the management of a company

As per Section 199 of the Corporations Act, the Company can indemnify the individual Directors for reimbursement of their legal costs only where the Director has not been found liable and then they can claim under the Company Reimbursement section.

Duties of a director include:

  • manage the company
  • pay the company’s expenses
  • borrow money on the company’s behalf and secure the repayment of that money
  • act honestly
  • be reasonable, careful and diligent
  • use information acquired through your office for the company’s benefit
  • use your position for the company’s benefit
  • disclose any interest in any contracts with the company
  • state whether or not the company’s profit and loss account and balance sheet give a true and fair view of the company’s position
  • report on and review the results of the company’s operations during the relevant accounting period and any significant changes in the company’s affairs during that period
  • prevent the company from trading while it is insolvent
  • disclose any errors or matters warranting disclosure in a prospectus
  • take care to see that the company does not breach the provisions of the Trade Practices Act or Fair Trading Act; anti-discrimination legislation; occupational health & safety legislation; environmental legislation and legislation that relates to the specific industry or industries in which the company trades.

 Where do claims originate?

  • Internally within the company itself, shareholders and / or employees
  • Externally from customers, competitors and / or creditors
  • Regulatory authorities such as the ACCC (as per the Australian Consumer Law), Australian Taxation Office, Occupation Health & Safety Legislation, Environmental Protection Agency, Crimes Act and ASIC. 

Additional Cover

 Additional cover can be purchased to insure for: 

  • Supplementary legal expenses for defence costs for claims against the corporation for EPA or OH&S prosecutions
  • Securities cover (Side C) for claims against the entity relating to Shareholding issues.
  • Employment practices liability against the entity for defence costs and settlement of employment related matters such as wrongful dismissal, discrimination, harassment etc.

How Much Cover Is Enough?

A guide to determining the amount of insurance cover needed is to estimate the worst possible outcome of a mistake made by a director or officer of the company.

Other factors to be considered are legal trends and the effects of inflation on the settlement amount if the claim is not resolved for some years. This last point is important as the amount of cover purchased in the year that the event was reported may not be sufficient if the claim does not settle for many years.

The policy limit selected includes cover for costs and expenses incurred in the defence of the claim. For example, if the policy limit is $5 million, and the claim settles for $4.8 million with defence costs of $700,000 having been incurred, the directors and officers would be uninsured for the amount in excess of the $5 million policy limit (i.e. $500,000).

Who can help?

An insurance broker's role is to act as your representative and work in your interests, seeking the best cover at the best price for you from market knowledge. Call a good one. Call CPR – Experts who will save you.

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Latest News

CPR now CAR of Ausure

From today, 5th March 2018, CPR Insurance Services are now Corporate Authorised Respresentatives of Ausure Pty Ltd.

CPR Insurance Services effectively outsources its IT Broking systems, Accounts, Compliance and support systems to Ausure for a very reasonable cost. It allows us to concentrate on being Insurance Brokers knowing we have strong support from a large prominent Insurance Brokerage and deliver the best possible Insurance Service to you..

For our existing clients, your Invoices will look a little different, premiums are made payable to Ausure Pty Ltd (as provided on the Invoice). However, our service to you will remain the best it can be.

From our point of view, we expect to have quicker and more responsive support. They are providing Broking Systems more advanced than most insurers. They are Brisbane based giving us a feeling of local support. We are now closer to the Steadfast Group who part own Ausure. They have been very strong supporters of our business and assist us in all areas of Insurance, including providing very advanced Quoting systems and carefully negotiated broader policy wordings.

We look forward to building a great relationship with Ausure that we are sure will benefit our clients.

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CPR joins Ausure

We would like to announce to all our Clients, Prospective Clients, Suppliers and Insurers, that Cooper Professional Risks Pty Ltd trading as CPR Insurance Services, will be leaving National Adviser Services Pty Ltd (NAS) and joining Ausure Pty Ltd as a Corporate Authorised Representative from 5 March 2018.

Fundamentally, there is no difference to you, except our Invoices will look a little different, and the Banking details will be in a different name and account number. Everything else at CPR stays the same.

There are a number of reasons we have made this decision, but the primary reason is for what we believe is best for our clients.

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