the d and o reality test

  • Date:01 Oct 2005
  • Type:CompanyDirectorMagazine

The D&O reality test

By Ali Cromie

Some thought-starters for directors and officers.
Q. Are you willing to risk all your personal assets?
A. Yes or No 

Q. Who do your trust to protect your personal assets in legal proceedings arising from your director or officer responsibilities?
(a) yourself
(b) yourself, your family, close friends,
(c) the company secretary, company legal counsel, fellow board directors
(d) professional advisers – paid for by the organisation you represent
(e) professional advisers – you pay
(f) specialist service and product providers who earn fees from the organisation you represent.
A mix of the above?

Some of the above?


None of the above

Align the time you spend on a task to its importance and objective.
If protecting your personal assets is of critical importance to you and your family:
Q. How often do you monitor and review your D&O cover?

(a) following legal cases affecting the interpretation of D&O policy wording

(b) after advice from your insurer about changes to your D&O policy cover inclusions or exclusions

(c) following your insurer re-branding or a change of your insurer’s ownership

(d) during your due diligence for a new board appointment

(e) when your organisation’s D&O insurance comes up for renewal

Total the time you have personally spent in the past 12 months understanding, monitoring and reviewing your D&O liability insurance cover?

Ask The “Dumb Question”
What doesn’t my D&O insurance cover?
Q. What if someone accuses me of improperly carrying out my director role? Does my insurer cover my legal costs to defend the allegations?
A. That depends on your insurer, the precise wording of your D&O policy, and the exact nature of the allegation.
Q. What if I’m utterly innocent, that the legal proceedings accusing me of dishonesty are absolute nonsense – part of legal suit launched in during heated litigation surrounding an M&A. Does my insurer cover my defence costs?
A. That depends on your policy wording, once again on the precise nature of the allegation.
      But in general, the word “dishonesty” in any allegation is like a red rag to an insurer because it carries a particular meaning in D&O land.
Q What’s the D&O definition of dishonesty
A. That depends on your insurer and the specific meaning ascribed to dishonesty
Q. Will my insurer pay my defence costs as litigation proceeds and costs are incurred not withstanding the legal suit has no
A. That depends ...
Q. What if
legal proceedings
commence after I’ve resigned as a director: there was no hint of litigation during my period as a director?
A. Again, that depends ...

You can’t outsource responsibility for decisions.
No director knows all the answers but a diligent one will:
• listen carefully to expert advice
• ask probing questions
• analysis the gaps in “the story”
• seek further information to enable an informed decision