Gallagher is advising Australian businesses and their senior executives to review insurance protections when directors are appointed to serve on external boards.
The brokerage highlighted the need for clarity around indemnity arrangements and the role of outside director liability (ODL) coverage, particularly when directorships are taken on at the request or with the consent of a primary employer.
With increasing numbers of executives sitting on boards beyond their own organisations – whether for not-for-profits, commercial ventures, or joint ventures – Gallagher noted that personal liability risks can arise, and protections should be clearly established in advance.
A deed of indemnity is a legal agreement between a director and the organisation they serve, setting out the scope of the organisation’s commitment to indemnify that individual for liabilities incurred in the performance of their duties.
According to Gallagher, these deeds typically require the organisation to maintain directors and officers (D&O) insurance for the benefit of the director.
The arrangement is intended to ensure that the director is not personally exposed to claims, within the bounds of what the law permits.
However, indemnity coverage under these deeds does not extend to all scenarios.
Directors cannot be indemnified for actions involving wilful misconduct, gross negligence, or breaches of statutory duties.
In addition, indemnities may not be enforceable where explicitly prohibited under the Corporations Act or where the organisation lacks the financial resources to meet its obligations.
When a business nominates or approves a director to take on a role with an external entity, that individual may be covered under the employer’s D&O policy through an outside director liability extension.
This coverage responds when the external entity’s own D&O insurance or indemnity obligations are insufficient or exhausted.
It typically applies only after other available protections have been utilised and is subject to the terms and conditions of the employer’s policy.
Gallagher advises organisations to notify their insurer promptly when such appointments occur, as policies may include notification clauses – sometimes requiring disclosure within 60 days – and may involve additional underwriting scrutiny or premiums.
Policy exclusions may also apply. For example, ODL coverage may not extend to individuals appointed to represent minority shareholders in external entities.
Directors are also reminded to be cautious of conflicts of interest that may arise when sitting on multiple boards and should recuse themselves from related decision-making when appropriate.
In its latest D&O Global State of the Market Report, Gallagher observed that the global D&O insurance market is entering a more stable phase after a period of heightened competition and declining premiums.
While pricing remains favourable in many markets, the rate of reductions is slowing, and insurers are showing greater selectivity at renewal.
Insurers are continuing to offer broad coverage terms – including enhancements like entity investigation coverage – particularly when brokered through experienced intermediaries.
