Managing the Risk of Directors’ Wrongful Conduct through D&O Insurance

Companies may suffer loss through the wrongful conduct of their directors. There are various techniques to mitigate this risk, one of which is insurance. This method transfers or shifts the risk to insurers and should assist a company seeking to mitigate this risk for the purpose of protecting the long-term interests of stakeholders. Accordingly, the question that the article seeks to answer is whether the company is truly able to mitigate the risk through insurance or whether there are certain obstacles that may prevent it from doing so.Being able to mitigate corporate risks by transferring the loss to the insurer is an important feature of corporate insurance policies. Such policy coverages are typically provided to the company under Directors and Officers Liability Insurance (hereafter D&O insurance), which was introduced by Lloyds of London in the late 1930s. This insurance is a type of liability insurance that aims to protect both the companies and directors for loss suffered either by the companies or third parties. The company may seek to bring a claim under the insurance policy for various types of loss due to the operational deficiencies of its business and behavioural shortcomings of its directors