Directors and Officers Liability Insurance

Directors and Officers Liability Insurance (D&O) is a liability insurance that covers “individual directors and officers (D&Os), for loss arising from claims against them for which they are not indemnified by the corporate entity” and covers, as well, “the corporate entity, for the amount it pays on behalf of the D&Os to indemnify them for loss they sustain.” The latter is known as the “company reimbursement clause.” It can also cover the company itself in what is known as the “corporate entity clause.” The necessity of a D&O insurance lies in the fact that directors and officers can be held personally liable for corporate acts. Being a liability insurance, it does not cover suits filed by the directors or officers.

The loss referred to are litigation expenses, specifically lawyer’s fees, bonds, cost of settlement, award of damages and other monetary obligations in relation thereto, in case they are sued. Loss usually excludes fines and penalties. There are insurance policies that exclude punitive damages, as when it is prohibited by law, on the ground of public policy. The reasoning is that punitive damages is intended to set an example or punish the wrongdoer, and permitting insurance against such punishment would render such punishment ineffective.In the Philippines, the Insurance Commission issued Legal Opinion LO-2017-05, July 12, 2017 stating: “Exemplary damages, regardless of the nature of the proceedings where the same is awarded, are not insurable under Philippine laws on the ground that the same is against public policy.” This opinion covers exemplary damages awarded even in non-criminal proceedings, which was the main query. The opinion cited Article 2229 of the Civil Code, which provides that exemplary or corrective damages are imposed by way of example or correction for the public good. The opinion was rendered upon query of FPG Insurance Co., Inc.

The body where the litigation or case is filed may be a regulatory, administrative, civil and criminal court. The suit may be brought by shareholders of the company, customers, vendors, competitors, suppliers, regulators, creditors, and others for alleged or actual wrongful acts in the course of their corporate duties.

D&Os only cover acts or omissions relating to official activities of the company. Excluded are deliberate criminal acts as well as fraudulent acts.

History of D&O

IT was in the 1930s when Lloyd’s of London introduced this insurance for corporate directors and officers. Its popularity did not pick up immediately. Even in the 1960s its sales were negligible. It was only in the 1970s when its necessity was being noticed. By the 1980s and the 1990s, D&O has become a standard feature when claims against directors and officers have increased. In the 1997 Wyatt Report, it was surveyed that 31 percent of all companies could expect to have at least one claim made against its directors or officers, and each company averaged 0.87 claims.

A recent proposal in the Philippines is to make D&O policies compulsory for listed companies, although it has been estimated that around 15 percent already provide D&O. In Hong Kong, D&O is compulsory for listed companies. In Singapore, it is not compulsory, but over 80 percent of listed companies provide D&O. In the US, over 95 percent of Fortune 500 companies have D&O insurance. 


For government-owned and controlled corporations, D&O policies are made available by the GSIS. The coverage is available for appointive directors, ex officio board members, alternates of ex officio board members, and executive officers. Authorization to provide D&O coverage is provided under Section 32 of the Code of Corporate Governance. As an alternative, a GOCC may provide for “self-insurance” by creating a Directors and Officers Liability Fund.


1 comment

  1. How about other government agencies (ex. DILG), not GOCCs, are they allowed to procure DOLI? can they procure DOLI?

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Previous Article

Anita Linda, the ‘Pambansang Lola’ and memories of Alhambra

Next Article

SSS Foreign Representative Offices: Servicing OFWs worldwide

Related Posts

Opinion - BusinessMirror
Read more

Let’s help preserve humanity’s lifeblood

The Earth is known as the “Blue Planet” because 71 percent of its surface is covered with water. The oceans hold about 96.5 percent of all Earth’s water. Of the waters occupying the planet’s surface, only 3 percent is considered freshwater. And most of this freshwater reserve is inaccessible to humans — locked up in polar ice caps or stored too far underneath the Earth’s surface to be extracted. Furthermore, much of the freshwater that is accessible has become highly polluted. This leaves us with roughly 0.4 percent of the Earth’s water that is usable and drinkable to be shared among seven billion people.

Column box-Sonny Angara 2
Read more

A big push for micro, small and medium enterprises

Earlier this week, we sponsored a measure that will institutionalize the Shared Service Facilities (SSF) Project of the Department of Trade and Industry (DTI). Through the SSFs micro, small and medium enterprise (MSME) qualified beneficiaries are provided with the appropriate machinery, equipment, and tools under a “shared” system that would address known gaps in the value chain, most notably the lack of adequate and appropriate facilities, which hinder them from elevating their products and services and enabling the creation of export-ready goods.

Read more

Women, economics, and economy

IN 1994, Ms. Universe Sushmita Sen gave her award-winning answer to the question of a woman’s true essence. Ms. Sen said, “Just being a woman is a gift of God that all of us must appreciate. The origin of a child is a mother, who is a woman.” Her reply implies that a woman’s reproductive role centers on being a biological bearer of infants—something that is expected and natural.