9.4 Insurance
Directors' and officers' indemnity insurance goes some way to indemnifying directors and officers in relation to claims for loss or damage made against them in their capacity as directors or board members. Directors and officers should seek and rely upon private legal advice as to its efficacy.
The policy will generally extend to cover the costs of a director successfully defending a prosecution for a "wrongful act". However, it is not possible to be insured against prosecution for a criminal offence, including fines and penalties such as those under the Corporations Act 2001 (external link) or any other law. Indemnity in such cases can only arise if the director is acquitted, and is then limited to the costs of the defence.
Other risks which many directors' and officers' insurance policies specifically exclude from cover are:
- claims made against the director by or on behalf of the company;
- dishonesty, fraud, criminal, malicious or wilful misconduct (with full knowledge and expectation of the consequences);
- seepage, pollution or contamination or the breach of any statute prohibiting or controlling omissions, waste or effluence;
- nuclear accidents;
- a wrongful act committed outside Australia or a claim initiated outside Australia;
- personal guarantees and warranties; and
- claims made against a director for having gained a personal profit or advantage to which he or she is not legally entitled.
The policy further usually provides that the indemnity does not extend to claims:
- arising out of a director or officer dealing in insider information;
- attributable to commissions, gratuities or bribes;
- made, threatened or intimated before the commencement of the policy; and
- in respect of litigation or disputes arising prior to the commencement of the policy.
Government Boards which are not constituted by statute but function in an advisory role only will not usually have the legal power to take out directors' liability insurance.
As a rule, the policy requires immediate notification of all claims or notice of intention to claim.
Last reviewed: 17 July, 2009
Last updated: 22 July, 2009
^ to top
