The responsibility placed on the directors and officers of the company by virtue of their position is increasing worldwide. Continuous involvement of institutional bodies in the capital market, new legislation and/or regulation (Amendment No. 3 to the Law, “Sarbanes-Oxley” regulations, the new IFRS accounting standards etc., along with legal precedents created all the time, increase the exposure of the directors and officers to personal lawsuits that may be filed against them.
This is not just a theoretical risk. Recently we have witnessed a significant increase in the number of personal lawsuits filed against directors and officers of companies that the economic crisis in 2008 and in 2011 led to their collapse or created substantial difficulty for them in meeting the payment terms of their bonds.
The strengthening of the trend to impose personal responsibility on the directors and company officers places at risk their private assets!!
This personal exposure requires the construction of additional protection mechanisms, as the existing policies in the market provide a good solution, but in some cases it is only a partial solution.
As a result, a number of insurance companies in Israel have recently launched a personal policy as additional protection for directors and company officers.
Main highlights:
- The policy is intended for directors who are involved in more than one company and are apprehensive about relying on the policy existing in the company in which they serve.
- The policy is personal and covers only the specific director and is purchased by them.
- The policy allows that director to choose the specific board for which they request coverage as well as the required financial limit (between $250,000 and a million dollars).
- The policy is an umbrella policy which sits over the existing insurance, and is activated in the following circumstances: 1) liability limit exhaustion
in the company’s policy. 2) in a situation where the policy does not cover the director because of a specific exception that does not exist in the personal policy (DIC). 3) in a situation where there is no indemnity from the company and no existing policy officers on behalf of the company.
- There is no deductible in the policy!
- The wording of the policy is in simple and clear language in Hebrew.