The D&O insurance policy is already comprehensive enough to cover almost all acts made by an executive/director on behalf of their company or otherwise. Depending on the policy you will purchase, that would also cover acts done by past and current executives/officers.
However, this does beg the question: can such policies also extend to people who are not exactly executives but are taking on such roles anyway? Before that could be answered, some distinctions have to be made.
What are Interim Executives?
Interim Executives is someone who basically works for the Board of Directors and assumes the role of a director. However, their tenure is quite short and, as the name implies, is going to be treated as an in-between for the terms of two official executives.
In most cases, an Interim Executive will have to stay on the position in between 6 months to 15 months. Their job is mainly to perform the obligations of an executive officer while the Board of Directors is still looking for a permanent leader. Aside from that, they are mainly there to control the situation.
The reason for why Interim Executives are needed is simple. Whenever an executive leaves a position or, in most cases, gets fired, that leaves a vacuum of power within the organisation that might affect its operations. An Interim executive, then, is there to help the board regain of a sense of normalcy in company operations so that they could find a more permanent person for leadership positions.
Also, interim executives are not consultants per se. They are just merely senior and more experienced persons helping the board manage the company until a more permanent person is found. Also, they may or may not be experts in a field. Their focus is on the transition period and would leave much of the technical stuff to another management team.
Can they be promoted to a more permanent tenure? Yes. There is a chance that the board likes the work of an Interim executive so much that they would rather retain them for a proper term. So, in essence, the interim period is less of a transition and more of a training phase for these people.
What are Non-Executive Directors?
Non-executive directors are simply directors who are not part of the executive team. Since they are not part of the executive team, non-executives are not typically involved in the day-to-day management of the company. However, they are more than necessary when it comes to making policies for the company to follow.
The value of a non-executive comes from the fact that they offer a different perspective compared to an executive director. When you are part of the executive team, you tend to have several restrictions as you have to find a balance between serving the interests of multiple agencies and entities. As a matter of fact, their work often deals with conflicts of interest between the parties that they serve.
A non-executive director, however, has none of those restraints. As such, they should have a more objective view on what the company needs which should be valuable once the management decides to amend some of its guidelines and policies.
Aside from corporate legislation, non-executives are also installed for public relations purposes. For example, a non-executive might be of good standing and reputation in the community that making him the face of the company would undoubtedly also help the latter with its reputation.
Can They Be Made Personally Liable?
When one asks if D&O policies can cover Interim and Non-executive directors, what they are also implying is if these people can be held personally responsible for any action that they may take by virtue of their positions. The answer is yes but not in all cases.
An interim director is still a directorial position which means that it comes with certain responsibilities and consequences if those responsibilities are not met. As such, they are still held liable for any action that they may make as a director just like any director with a more permanent tenure.
For instance, if an interim director misrepresents the company in trade, they would still be held personally liable for civil and criminal charges that could potentially arise from that action. The same could be said for allegations on fraud, mismanagement, and breaches of fiduciary duties.
Simply put, whatever a permanent director can be held liable for, the interim director can be as well.
As for non-executives, things can get a bit complicated. Basically, a non-executive may or may not be held personally liable for their actions depending on the scope of their work.
A non-executive who works primarily as a consultant and policy maker may or may not be held liable for the actions that a company makes. This depends on whether or not their decision was integral to that action. As such, non-executives who stood as the lone voice of dissent when the company planned on a strategy may have the ability to misjoin (that’s a legal term for forcefully withdrawing) themselves from any civil action as a defendant.
However, if their work involves public relations and representing the companies in official channels, then they may be held liable for their actions even if such actions were not done on behalf of the company.
For instance, if the action of a non-executive director inadvertently leads to financial losses for the company, they can still be held personally liable for such.
The point is that personal liability is as directly applicable to interims and non-executives as much as internal and permanent executives. So as long as a fiduciary relationship exists between two parties and that relationship has a potential of being violated, then one party can always be held liable for any action they make on behalf of the other party.
But Do D&O Insurance Policies Cover Them as Well?
And now we come to the most important question: can a directors liability insurance policy also include non-executives and interims? The answer is yes and no. Since personal liability fully applies to non-executive and interim directors then, from a logical perspective, D&O liability insurances should cover these people as well when they get slapped with a civil suit.
However, there is one certain thing you have to make sure: the policy itself must consider these people as “directors” as far as its terms would apply. What you have to understand is that the policy-based term definition is not going to be as similar to statute-based term definition.
Some policies would adopt a more exclusive approach to term definition which aims to limit the number of people that it covers down to those that fit the definition in its most basic terms. So, you might find policies whose definition of a “director” are those that work for their company with a more secured tenure and have a well-defined set of fiduciary duties. In other words, these insurances would apply only to internal and permanent directors and officers.
However, you would also have policies whose definition of terms tend to be more, well, liberal. As such, they are more inclusive in scope which means that any position that holds even the slightest amount of fiduciary responsibility and takes on directorial obligations as directors. As such, they are going to be covered by that policy so as long as they are considered as directors and officers of the company.
What Are You Supposed to Do, Then?
Since not all D&O policies would cover interims and non-executives, the most important act that you can do is to check on that policy’s stipulations first before purchasing it. The first place you have to scrutinise is the definition of terms as this will determine whether or not these kinds of directors would be included in the coverage. What you are looking is a more inclusive definition of what a “director” is to make sure that coverage is for every director of the company.
Next, you’d have to look at special clauses. Some policy providers might provide for an exclusion clause which limits the people as well as the instances when the policy may be invoked.
What you’d be looking for, however, is a Prioa Acts Clause which should ensure that every decision that the company makes will be provided coverage, regardless of what type of director made such a decision. That would mean that every director that has ever worked for the company, even ones who have resigned and left the company, would be provided legal assistance for whenever a civil suit arising from their decisions in the company would be filed.
In Conclusion
Interim and Non-Executive directors might have different roles and shorter tenures compared to your typical director but directors they are nonetheless. As such, it would still be recommended that you find an insurance provider whose D&O liability insurance plans covers for all types of directors.
That being said, it wouldn’t hurt to also inform the underwriter of the hierarchy in your company. That way, they can craft a policy which shall include all vital directors and officers in the assistance that it promises.
