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    Directors and officers are increasingly exposed to investigations, regulatory enforcement actions and lawsuits which press demand for Directors and Officers Liability Insurance (D&O Insurance). As a result D&O Insurance is increasingly regarded as essential insurance protection for companies’ decision makers. Many directors regard adequate D&O protection as a prerequisite for serving on board.

    Repealed Turkish Commercial Code numbered 6762 of 1956 did not regulate D&O Insurance. With the entry into force of the new Turkish Commercial Code numbered 6102 (Code) in July 2012, a major step was taken for the modernization of Turkish corporate law and introduction of corporate governance reforms. As one of the crucial pillars of this modernization process, D&0 Insurance has been introduced under Article 361 of the Code.

    Article 361 of the Code enables the purchase of D&O Insurance to insure the loss that may be incurred by a joint stock company as a result of directors’ actions.

    D&O Liability Insurance which has been known and frequently applied in the USA, European Countries and Japan since 1930s was also known in Turkey, however, it has been applied very rarely. As stated in the Code’s preamble, the new provision aims at initiating an expansion of D&O Insurance in Turkey.

    This Client Alert aims at presenting a summary explanation of D&O Insurance in light of the newly adopted provision of the Code.

    Drivers of D&O Insurance

    Drivers of D&O Insurance • Professionalism as an added value

    The main reason underlying the need for D&O Insurance is to enable members of board of directors and other senior officers to render strategic decisions and take risks according to the information being provided to them at the time of decision without being exposed to threat of personal liability. Thus the companies can encourage the most skilful, knowledgeable and reasonable directors and officers to work with them. It is widely accepted that D&O Insurance has an effective role on composing a board of directors consisting of directors and officers who are professionals and bear sense of responsibility and appropriate skills for the nature of the work.

    Increased transparency and accountability

    Over the past decade, perceived or actual negligence by corporate leadership resulted in a significant increase in the number of corporate disasters. The need for protection against such disasters is reflected in the Code as corporate governance reforms, which in turn require greater transparency and in some cases heightened accountability for directors.

    Suits Against Directors by Shareholders, the Company itself and Creditors of the Company:

    Simultaneously with the introduction of corporate governance reforms, the legal environment became more plaintiff-friendly at the expense of directors. For instance, Article 553 of the Code expressly states that members of the board of directors and officers are liable for the loss incurred by the shareholders, company and creditors of the company in the event of negligent breach of duties arising out of law or the articles of association of the company.

    The Code allows the establishment of a two-tier board system, which consists of a Management Board bearing the responsibility to manage the company and a Supervisory Board that oversees and appoints the members of the Management Board. If and when Managing Directors breach their duty and such breach results in a financial loss to the company, Supervisory Directors can sue Managing Directors responsible for such loss.

    Furthermore, under Article 371 of the Code directors’ and officers’ liability can be challenged by the company for tort committed during the course their work.

    Last but certainly not least; derivative actions –where shareholders are entitled to sue directors or officers on behalf of the company- are permitted by virtue of Article 555 of the Code.

    Regulatory Enforcement

    Companies are under greater regulatory scrutiny and more likely to be subject to enforcement actions. Directors and officers may be exposed to liabilities in various fields such as health and safety, pollution, competition and cartel activity. Regulators including Capital Markets Board of Turkey (CMB), Banking Regulation and Supervision Agency (BRSA), Turkish Competition Authority (TCA) are increasing their focus on top management.

    It is worth to note that directors and officers of multinational companies are further exposed to investigations and regulatory actions coordinated across national borders by regulators in Europe, the US and elsewhere.

    Criminal Actions:

    In addition to the above mentioned liabilities, the Code also provides for rules under which individuals can be charged for criminal actions for their actions as company directors and officers. Fines and penalties can be significantly high in amount, which further increases the importance of D&O Insurance Liability for directors and officers.

    Employee Suits:

    Employees are entitled to bring claims against directors and officers as well as the company itself with regard to employment- related acts such as harassment, discrimination, wrongful dismissal. As a result, employee claims appear as another significant source of D&O claims.

    Fundamentals of D&O Insurance Policy

    D&O Insurance is qualified as liability insurance. As per the Code, it is not mandatory but rather voluntary. Even though D&O is traditionally conceived to be for the benefit of directors and officers, it is typically purchased by the company itself as the policyholder and as an insured entity. Without prejudice to the generality of the foregoing, directors and officers can independently purchase D&O Insurance as well.

    Source : www.ersoybilgehan.com


    Nonprofit Directors & Officers (D&O) Liability insurance helps cover the defense costs, settlements and judgments arising out of lawsuits. Learn more from Travelers.

    What is Nonprofit Directors & Officers Liability Insurance?

    Nonprofit Directors & Officers (D&O) Liability insurance helps cover the defense costs, settlements and judgments arising out of lawsuits and wrongful act allegations brought against a nonprofit organization. Many times nonprofits may not even realize that their board members may be held personally liable for the actions of the organization.  Protect your organization's mission and your board member's personal assets with Directors &  Officers liability insurance for nonprofit organizations – you can’t afford not to.

    Travelers Knows D&O Insurance for Nonprofits

    Nonprofit organizations of all sizes can be under the threat of litigation from vendors, donors, competitors, employees and government regulators. Without the proper coverage, it can be difficult to cover costs of legal fees or damage awards if faced with a lawsuit.

    Directors & Officers liability insurance for nonprofit organizations is designed to help protect the organization, its mission and its directors and officers if they are sued by vendors, current or former employees, donors, beneficiaries or other parties. Suits can claim actual or alleged errors, misleading statements, breach of duty or misuse of funds or authority, putting the mission of the organization as well as the personal assets of board members at risk in defending against these suits.

    Who is D&O Liability Insurance for Nonprofits Right For?

    Directors & Officers liability insurance can help secure a nonprofit’s mission, as well as protect the personal assets of directors and board members. Having the right coverage can help attract and retain qualified directors and board members to your nonprofit organization.

    Features of D&O Insurance for Nonprofits

    Directors & Officers liability insurance for nonprofit organizations offers protection for the risks that nonprofit organization face. Nonprofit Directors & Officers liability coverage not only includes coverages for the defense costs, settlements and judgments associated with claims against nonprofit organizations but also helps protect the personal assets of the organization’s directors and board members.

    Learn more about Directors & Officers liability insurance for nonprofit organizations with the information below.

    Insights & Expertise

    Uncover Risks to Your Nonprofit Organization [Video]

    Learn more about unseen risks and how coverage can help businesses prepare.

    Coverage 101

    Learn why you and your organization need protection

    4 Considerations for Nonprofit Directors

    Protect your organization’s mission and your personal assets.

    Source : www.travelers.com

    Directors and Officers (D&O) Liability Insurance Definition

    Directors and officers (D&O) liability insurance covers directors or officers of a business or other organization if a lawsuit is brought against them.


    Directors and Officers (D&O) Liability Insurance

    By JULIA KAGAN Updated March 04, 2022

    Reviewed by THOMAS J. CATALANO

    What Is Directors and Officers (D&O) Liability Insurance?

    Directors and officers (D&O) liability insurance is insurance coverage intended to protect individuals from personal losses if they are sued as a result of serving as a director or an officer of a business or other type of organization. It can also cover the legal fees and other costs the organization may incur as a result of such a suit.


    Directors and officers (D&O) liability insurance covers directors and officers or their company or organization if sued (most policies exclude fraud and criminal offenses).

    D&O insurance claims are paid to cover losses associated with the lawsuit, including legal defense fees.

    Side A coverage covers directors and officers for claims where the company refuses to or is financially unable to pay for indemnification.

    Side B coverage covers the losses of directors and officers when the company does grant indemnification.

    Side C coverage, also called "entity coverage," extends coverage for the corporate entity itself.

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    Understanding Directors and Officers (D&O) Liability Insurance

    D&O insurance applies to anyone who serves as a director or an officer of a for-profit business or nonprofit organization. A D&O insurance policy insures against personal losses, and it can also help reimburse a business or nonprofit for the legal fees or other costs incurred in defending such individuals against lawsuits.

    D&O insurance claims are paid to directors and officers of a company or organization for losses or reimbursement of defense costs if legal action is brought against them. Such coverage can also extend to criminal and regulatory investigations or trial defense costs. Civil and criminal actions are often brought against directors and officers simultaneously.

    D&O insurance is akin to corporate governance, corporate law, and the fiduciary duty owed to stakeholders, such as shareholders and beneficiaries. US federal law grants directors and officers broad discretion in their business activities. Corporate law is typically handled at the state level. Publicly traded companies are subject to more federal regulation than privately held companies, particularly due to the Securities Act of 1933 and the Securities Exchange Act of 1934.

    Types of Directors and Officers Liability Insurance

    The typical D&O insurance policy contains three types of insuring agreements. They're commonly referred to as Side A, Side B, and Side C.

    Side A coverage covers directors and officers for claims where the company refuses to or is financially unable to pay for indemnification. This can occur, for example, if the company has declared bankruptcy. Under Side A coverage, the individual officer is the one who's insured and it's their personal assets that are at risk.

    Side B coverage covers the losses of directors and officers when the company does grant indemnification. In this case, the policy will reimburse the company for legal costs. Under Side B coverage, it is the company that is insured while its corporate assets are at risk.

    Side C coverage, also called "entity coverage," extends coverage for the corporate entity itself. Under Side C coverage, the company is insured and its corporate assets are at risk.

    The exact coverage that a company goes with ultimately depends on its unique business model characteristics, needs, history, and financial picture.

    Directors and Officers Liability Insurance Process

    The process of D&O insurance in real life is straightforward. It all starts when a manager allegedly fails to perform his or her role. Some common risk scenarios include employment malpractice, reporting errors, inaccurate disclosures, insolvencies, and regulation violations. As a result, several claimants decide to sue the manager.

    Once the manager and the legal/risk management departments are informed of the claim, they then provide a description of the claim to their broker/insurer. If the claim is covered, the insurer covers the defense costs. If the claim is covered and the case is lost, the insurer pays for the defense costs and the financial losses.

    Of course, that example heavily depends on the terms and conditions of the specific policy.

    D&O insurance has become closely associated with broader management liability insurance, which covers liabilities of the corporation, as well as the personal liabilities for the directors and officers of the corporation.

    Special Considerations

    D&O policies can take different forms, depending on the nature of the organization and the risks it faces. It’s best to seek out an insurance company with deep experience in this specialized field. The policies are generally purchased by the organization to cover a group of individuals rather than by the individuals themselves.

    If a company fails to disclose material information or willfully provides inaccurate information, the insurer may avoid payment due to misrepresentation.

    The "severability clause" in the policy conditions may be intended to protect against this by preventing misconduct by one insured from affecting insurance for other insureds; however, in certain jurisdictions, it may be ineffective.

    Source : www.investopedia.com

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