In an exciting collaboration between Minet Malawi, Britam, and The Daily Times - Malawi's leading newspaper - we are thrilled to introduce a groundbreaking initiative that will redefine your Wednesdays. Welcome to the Insurance Insights Column – a weekly rendezvous with the world of insurance and contemporary issues that matter. Every article aims to illuminate the intricate landscape of insurance products and relevant topics that impact us all. The articles are educative at all levels, catering to both practitioners and non-practitioners.
As published in The Daily Times (Malawi) on October 16th, 2024
Every company is regulated by memoranda and article of association. Whereas memoranda define the relationship of a company with outsiders, articles deal with internal regulation of a company. Articles of association, for example, delegate management of a company to directors to take policy decisions on its behalf. The board, as directors are collectively referred to, also assumes the role of agents and trustees in carrying out the business and controlling assets of a company. Together, with executive managers, they are the officers of a company.
By virtue of the responsibilities vested in them, directors are liable for any breach of authority committed to the company and other stakeholders, such as shareholders, creditors, debtors and even employees.
Directors are identified in two categories - executive and non-executive. Executive directors are full time employees of a company, non-executive directors are not.
Despite this difference, both executive and non-executive directors are in a position of trust. They have a duty of good faith to a company, which they represent. This was initially coined by apostle Paul in the Holy Bible, in his letter to the Corinthians – first Corinthians chapter four verse two, “. . . now it is required that those who have been given a trust must prove faithful.” Directors are not supposed to make personal secret profits, abuse the power endowed on them or breach any confidentiality. Any act conducted by a director, which is illegal or outside the powers bestowed, will make him or her liable.
Directors, who are usually people of high integrity and respect in a society, are supposed to exercise high degree of skill and care as they carry out the business of the company in view of their knowledge and experience. Any breach of this fiduciary duty may lead to an action of damage against them by third parties. The extent of directors’ powers is defined by articles of association.
The responsibilities of directors of listed companies are more onerous than those whose companies are not listed. For instance: directors of listed companies have a duty to post company’s returns at the end of each financial year. Failure to comply may land directors default fine or imprisonment.
Insurers have a policy that protects against legal liabilities incurred by directors. Companies can arrange directors and officers liability insurance to hedge against legal liabilities that a director may pick as they carry out duties of a company.
Directors and officers liability insurance provides cover for legal liabilities to pay damages and other costs incurred by directors and executive managers as they carry out duties of a company. Cover is provided on claims made basis - meaning damages must be made against a director in the current policy period. This eliminates carrying forward losses from one policy year to another or from one insurer to another [for those companies that habitually change insurers, yearly].
For a claim to be admissible, it must arise from actions based on breach of fiduciary duty, trust, error, misleading statements or any other wrongful acts against a director acting on behalf of a company. Cover can be extended to include civil liabilities. But this is rare.
Cover for directors and officers’ liability is wide. Insured persons are usually past, present and future directors of a company.
The policy does not insure auxiliary employees or support staff. Cover is for individuals, who report to either shareholders or the board. If you make overall decision in an organization and take yourself as shareholders’ representative, then you stand to benefit from the policy.
Directors and officers liability insurance, just like any liability insurance offers specific protection against third party claims. Payments under directors and officers liability are not made to the insured. It is paid to a person, who has actually suffered loss and is not a party to the insurance contract.
Views from the top are that although directors and officers liability insurance is not compulsory by law in Malawi and consequently hardly taken by companies, it is a must-have for financial and legal institutions. The nature of business of these organizations is idiosyncratic. Protect your directors. Protect your Exco. Talk to us. We are here to guide and serve you.
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