The nature of directors' and officers' liability insurance

Abstract

The design and inception of a Directors’ and Officers’ liability insurance policy, far from being merely a straightforward contract or undertaking, is extremely complex.  D&O insurance possesses its own features, principles and, in recent times, rules of law, making it unique both in its nature and implementation.  The purpose of this research is therefore to scrutinise the origins and the rationale underlying D&O insurance, in order to ascertain whether or not these policies are or not a realistic comfort to directors and to those inside and outside the company who rely upon their actions.

The most important theme of this thesis is that D&O insurance is in fact of less importance than it at first sight appears, as it will not cover a number of important heads of potential liability faced by directors.  This is so because directors do not experience the same extensive liabilities to their companies as is the case in the US (where this form of policy originated), because English law has all but removed the possibility that a company director can in his/her personal capacity face liability to a third party, because insurance policies do not cover deliberate acts on the part of insureds and because some of the liabilities, which may be endured by directors, are simply uninsurable.  However, there are two scenarios in which D&O significance is unquestionable namely: defence costs cover - albeit this depends upon what the policy says about payment and allocation- and for reinsurance and retrocession although there still is the problem of matching cover.

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