The D&O policy provides cover for the personal liability of Directors and Officers arising due to wrongful acts in their managerial capacity. Defense costs are also covered and are payable in advance of final judgment. This policy provides protection for claims brought against directors, officers and employees for actual or alleged breach of duty, neglect, misstatements or errors in their managerial capacity.
Some of the specific exposures that make D&O insurance necessary are like Vulnerability to stake holders, employment practice violations, Regulatory investigations, Accounting irregularities, Corporate Governance requirements, Compliance with various legal statutes
After the Corporate failures in the recent past such as Satyam, Sahara, Kingfisher, The Government introduced D&O Liability Insurance under sub section 13 of Section 197 of Companies Act, 2013. The SEBI Act, 1992 describes Liabilities and penalties which are up to 25 crore or 3 times the profit made out of insider trading, whichever is higher with imprisonment. Apart from the SEBI Act, the Companies Act 2013 also provides Liabilities and Penalty for the above.