Cyber breaches and D&O – what insurance policies don’t cover

Kamohelo Mokoena | Client Services Advisor | Aon South Africa | mail me |

Cyber incidents continue to grow in frequency and severity, especially as new technology emerges. While D&O and cyber liability policies offer distinct coverage differences, terms need to be carefully structured to avoid potential gaps.

Technology advancements, including generative Artificial Intelligence (AI), require directors and officers to remain vigilant as threat actors harness applications to drive new exposures. Directors’ and Officers’ (D&O) policyholders must have a clear grasp of how their policies will respond in the event of a cyber incident. This includes understanding the differences between how their D&O policy coverage differs from their cyber liability policy.

What is D&O insurance?

A D&O policy provides protection for directors and officers if they are sued for a wrongful act in their personal capacity in relation to their performance of their duties for unintentionally making an error or omission as it relates to the Company. Although the cover is purchased by the company, the primary coverage is for and on behalf of the directors and officers themselves.

The cover advances defence costs in the event of a claim made by shareholders and third parties, subject to final non-appealable adjudication or written admission.

A D&O policy would provide cover for:

• Side A – Individuals in executive positions

Individuals that hold a position of power within an organisation can be held personally liable for acts of negligence or failure in their fiduciary duties.

For example, if the shareholders of a company launch a lawsuit against its directors, alleging that they had breached their fiduciary duties by authorising the acquisition of another organisation at an exorbitant cost. The parties reach a settlement in which the organisation is to be compensated by the defendants.

From a legal perspective, the law prohibits indemnification of amounts paid to corporations in settlement of derivative lawsuits such as these as payments would be circular in nature, which is where D&O insurance comes into play.

• Side B – Corporate reimbursement 

A D&O insurance policy would reimburse the losses incurred by a company if…

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