Director and Officers indemnity insurance protects them from legal liabilities that may incur personallyin managing a corporation. Director and Officers liability insurance protects directors and officers fromliability arising from actions connected to their corporate positions. However, the insurance only coverscivil liability and not criminal. Insurance will never pay fines arising from criminal liability/ Jail.Education.Seek advice from other lawyers/company secretaries.
There are certain clauses in the contract which states that they do not cover events where it is foundthat the director are not acting honestly or breached their fiduciary duties. Exclusions- Dishonesty andprofessional liability exclusions However, it doesn’t mean that directors can slacken in their duties cause any breach will still result in civil and criminal liability, D&O only helps to cover damages and defense costs. A common misperception of D&O insurance is that it makes directors or officers able to engage in acts they know to be wrong; this is not the case. Intentional illegal acts or any illegal gains/profits obtained by directors/officers are not covered under most D&O insurance policies; coverage would only extend to "wrongful acts" as defined under the policy, which may include certain acts, omissions, misstatements while acting as a director/officer of the organization. Exclusionary language, however, would not provide coverage for fraud, illegal profits/gains, or intentional/wanton illegal conduct by such director/officer (as examples). Also, as the insurance will only cover a certain amount and types of claims depending on the insurance. Hence directors will still have to be careful in their work. Purchase indemnity and liability insurance. Indemnity and liability insurance does not cover criminal liabilities, fees and fines. Arrangement between the company and the directors so that the company pays for the liabilities of the directors. This is prohibited by section 172.-their reputation may still be at risk-the coverage of insurance may not extend to fraud-they may still be disqualified5. Read the case of Lim Weng Kee v Public Prosecutor 2 SLR (R) 848 (via Lawnet) to get a brief outline. The case deals with a breach of director’s duties and concerns a director of a pawn shop who released pawned items without making proper checks.(a)Did the facts give rise to criminal proceedings or civil proceedings or both?(b)What section of the Companies Act was breached and why was it breached?(c)Would there have been a civil proceeding or criminal prosecution if it was an ordinary partnership instead of a company? Why?Note: the purpose of reading an actual case is to highlight the fact that what you are studying is not something just theoretical but arises in real life.