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CONTENTSINTRODUCTION...................................................................................................................................4

31 KEY AREAS OF REVEIW...................................................................................................................5

CONCLUSION.....................................................................................................................................12


INTRODUCTIONThis document outlines a checklist of some of the key questions and aspects that the directors and officers should have regard to in securing an appropriate Board and Directors and Officers insurance policy.

The following Checklist outlines various questions the organisation should consider about Directors and Officers insurance.

It is important for Boards and or directors to recognise that in undertaking any review of an insurance policy it cannot be undertaken as an exercise of an exact science.

Ultimately as the AICD itself considers, Directors are the ones that need to review and consider their Directors and Officers insurance cover carefully from the outset.

The Checklist that Enterprise Care has developed facilitates this review.

Directors can only be the person with the sufficient judgment and insights into their organisation to best respond to the various issues such as: -

Are the risks, errors and claims covered in the Directors and Officers policy right for me?

Are the policy limits ($A) appropriate?

Is the Directors and Officers policy the right product for me, e.g. publicly listed, private, not for profit?

Are there any needs specific to my industry or circumstances that should be specifically addressed in my Directors and Officers coverage?

Are there any exclusions that I am not comfortable with?


31 KEY AREAS OF REVEIW

QUESTIONS BOARD/DIRECTOR RESPONSESDo we have Directors and Officers cover?

Yes / No

Maybe in the policy it is referred to as Association Liability Insurance …..

Name of insured entity – confirm that the correct and precise legal name of entity is recorded

Is the Directors and Officers policy the right product for our organisation e.g. publicly listed, private, or Not for Profit?

The policy is for Associations and hence suitable for a Not for Profit entity

Or ……….

Who is the insurer? Name of Broker e.g.; XYZ Insurance Brokers with

Name of Insurer e.g.: ABC Insurance Ltd

What are the duties and obligations placed on each director?

o Obligation to exercise your powers and discharge your duties in good faith in the best interests of the corporation and for a proper purpose

o Common law duty to avoid conflicts of interest and statutory duties to disclose personal interests and not to improperly use position or information

o Obligation to exercise care and diligenceo Obligation to prevent insolvent tradingo Obligations to comply with personal liability

provisions under various State and Federal statutes (including occupational health and safety and environmental protection provisions).


QUESTIONS BOARD/DIRECTOR RESPONSESWhat are the financial risks for directors?

If you breach a duty or fail to meet an obligation, you may be required to pay:

o Compensation to an aggrieved party.o A fine or penalty.o Legal costs of the other party.o Your own legal defence costs.

Interest may be payable on any of the above.

Who might be the potential claimants against you as a director?

A claim for breach of a duty or failure to meet an obligation as a director may be brought against you by parties such as:

o The Organisation itselfo Members / Shareholderso Regulators i.e. ASICo Employeeso Creditors o Competitorso Customerso Liquidators (or administrators or trustees)

oro Other directors on the board

Is the insurer financially strong? For example, the history about the Insurer may be:

Supported by over 75 years of experience, the named insurer provides market leading insurance products and solutions to businesses of all sizes - from small start-ups right through to some of Australia’s largest corporations etc……...

Does the insured have a good history of paying claims?

In respect to both domestic and commercial property claims they are very good.Or there have been instances or references to difficulties and complaints made or ………


QUESTIONS BOARD/DIRECTOR RESPONSESWhat is covered? The provision of the following services:

- Advocacy and promotion of the Organisation’s objectives, area of focus or interest,

- Fundraising activities,

- Registration and accreditation of members,

- Publication of professional or technical standards,

including journals and publications written by the Insured for or on behalf of members,

- Training Services,

- Liaison Services,

- Marketing Services

- Referral Services,

- Promotion of specific issues …………… or products

Are there items usually covered in an Association Directors and Officers policy, but is not included in this policy?

Yes / No

This is typical of an Association D&O type cover

Or a SME D&O policy……………

What are the policy limits? $10,000,000 any one claim

$20,000,000 in the aggregate inclusive of costs and expenses in investigation, defence and settlement of any claim

Is the dollar amount of the coverage sufficient?

Association Liability limits under a singular policy may range from $1,000,000 up to $20,000,000.

EG: The limit that our organisation seeks appears to settle in the middle range of what is available in the marketplace

Are the policy limits enough? The size of a possible claim is unable to be predicted or is difficult to assess or quantify?

The organisation should bear the responsibility of determining what is their appetite and therefore their own limit


QUESTIONS BOARD/DIRECTOR RESPONSESAre the excesses or deductibles appropriate?

EG: $2,000 each and every claim, inclusive of law costs and expenses incurred in defence and settlement of any claim; and

$7,500 Employment Practices and Fidelity

Are the premium payments competitive?

Our broker i.e. XYZ Insurance Brokers have put our organisation’s business submission to the market and this is their suggested solution from a cover and price point of view

Is it a "claims made" policy; and does it also have a “run off” cover?

Claims made policy; and

Run off cover is only required if the entity were to cease operations. It is at this stage we would convert the policy from an ‘active policy’ to a ‘run off cover’. This policy has the capability to do this if required

Has proper disclosure been made when taking out or renewing the policy?

This is a specific query that is best directed and responded to internally; especially to those within the organisation, being Directors and Officers who liaised and disclosed information during the period of discussing the Directors and Officers cover and negotiating policy.

It is important to disclose every matter that you know, or could reasonably be expected to know, is relevant to the insurer’s decision whether to accept the risk of insurance, and if so, on what terms.

This is called the legal ‘duty of disclosure’. If you fail to comply with your duty of disclosure, the insurer may be entitled to reduce its liability under the policy if you make a claim or may cancel the insurance policy entirely.

There is a duty of disclosure requirement which is typical of all insurance contracts.


QUESTIONS BOARD/DIRECTOR RESPONSESWhat are the key policy terms? Refer to the Coverage Summary document

provided via i.e. our broker – XYZ Insurance Brokers; and for further detail, refer to the Insurer’s own Policy Wording document.

Does the policy cover all directors and officers, or do they have to be specifically named?

Covers all directors and officers, without there being a requirement for each to be specifically named.

Refer to the definition of an Insured in the policy wording

Does the policy also cover the corporate entity?

The definition of ‘Association’ is ‘the organisation specified as the Association’, and in your case, it is Name of Organisation Limited

What is the definition of “Officer”? The Insurer may or may not specifically define this word in their policy wording

Are there extensions of cover; or cover for specific events such as for legal costs incurred in investigations or enquiries?

There are extensions of cover as per the policy wording

What are the exclusions under the Directors and Officers policy? Are the exclusions from coverage too broad?

The exclusions are detailed on page “XX” of the policy wording. The sub headings are as follows;

Asbestos, Assumed Liability, Benefits, Bodily Injury & Property Damage, Dishonest or Criminal Intent/Improper Conduct, Fading and Mould, Industrial Relations, Investment Advice, Known Claims & Circumstances, Motor/Marine/Aircraft, Nuclear, Occupational Health and Safety Law, Pollution, Related Parties, Retroactive Date, Return of Remuneration, Subrogation Waiver, Trading Debts/Professional Fees, War & Terrorism

The above exclusions are typical of an Association policy cover.

What cannot be covered in the Directors and Officers policy?

This can differ depending on the policy wording.

Professional indemnity is not covered under the Directors and Officers policy; as well as Fidelity, tax audit; and volunteers are not deemed as ‘insured’.


QUESTIONS BOARD/DIRECTOR RESPONSESWhen can the insured terminate or not renew coverage?

Name of Organisation being the Association under the policy, is entitled to cancel this Policy at any time, by notice, to the Insurer.

Upon receipt of such request, the Insurer will retain a short period premium calculated at a pro rata of the Full Annual Premium for the time it has been on risk plus ten per cent; and the Association will receive a refund of any balance of the premium.

The Insurer can cancel the policy as per the Insurance Contracts Act 1984,

Extract from the insurer’s Liability policy wording: . . . .

Are you able to choose your lawyer in the event of a claim? Or do you have to use the insurer's lawyer?

Insurers typically have a panel of lawyers with agreed rates etc.

It is likely in the event of a claim that the Insurer will appoint a law firm from their panel.

Are all legal fees covered? Determine if this is a provision; and if so does it fully cover the item as per the policy wording

Does the insurer promise to advance the costs of legal fees in the event of a claim or merely reimburse for out of pocket costs?

There is a provision for advancement of defence costs under extension X.X on page XX of the policy wording.

© Enterprise Care Pty Ltd Licensed Product Page 10

QUESTIONS BOARD/DIRECTOR RESPONSESIf we have Directors and Officers insurance, does any director still need a deed of indemnity?

Indemnities can be typical in many organisations, including in the entity’s constitution; and additionally, in some instances a deed of indemnity (and access and insurance), will also be provided.

Investigation into your own circumstances may be further explored to satisfy your requirements.

A Deed of Indemnity is a legal agreement between the organisation and a director. It contains the terms of how the organisation will indemnify, or cover for, the legal costs and liability incurred by a director or officer while performing their role.

With all directors being personally liable, if one or more are found to be in breach of their duties, then a Deed of Indemnity with the company, means payment can be made of these costs for the director, up to the scope determined in the agreement.

Does cover extend to all relevant directors and officers and all relevant companies in the group?

As per the definition of ‘Insured’ and ‘Association’

Are "outside directorships" covered? It may be provided for which will therefore have the following response:

Yes, as per the policy wording


CONCLUSIONIf nothing else, the above Checklist provides each director and the Board an opportunity to review and consider the organisation’s Directors and Officers insurance policy in an informed, structured, and focussed manner.

It can be seen from the matters raised for consideration in the Checklist, that Directors and Officers insurance policies are both detailed and involved. Importantly it is worth noting that every “insured” is different. Also, each of the individual director’s circumstances are different.

What this of course means is that each director when involved in the organisation’s insurance renewal activity, needs to determine what risks and exposures that they are comfortable in accommodating. It therefore means that there is a judgment demanded of each director to assess and determine the level of risk they are ultimately comfortable with. In other words, what is their personal risk appetite.

It is appropriate for each director to know that it is not unusual for the company and directors to share different interests e.g. the company may seek to purchase an inexpensive cover; and such a policy may therefore mean that the cover is not as good.

Of course, there will need to be a collective view of all directors by way of a Board approved risk appetite for the organisation itself.

Being aware of what is occurring in the marketplace is essential as a director. This is a view which benefits from the input of your broker. Experience in the Not for Profit and or association sector / industry and experience and qualifications of the person managing your account is also an important consideration.

Finally, while ensuring that the organisation and its directors have the right insurance cover, nevertheless there is still the need for the organisation to have quality, professional and sound governance practices in place. This primarily is the best and most reliable insurance for both the organisation itself and the directors of the organisation.


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