Directors’ Lawsuit Cases and the Importance of D&O Insurance for Companies in Indonesia

Hello, friend Liga Asuransi We’re delighted to welcome you back to our trusted information channel, which discusses strategic risk protection in the business world. This time, we’ll take an in-depth look at a crucial protection often overlooked by companies: Directors and Officers Liability Insurance (D&O Insurance). Is this insurance only for large companies? Does your company really need it?

In an era of transparency and accountability, directors and commissioners are required to act responsibly. However, even if they have performed their duties according to procedures, they still face potential lawsuits from shareholders, employees, and even third parties. Cases such as alleged abuse of authority, poor business decisions, and violations of capital market regulations pose serious threats.

Without adequate protection, a single lawsuit can have a major impact on executives’ personal finances and reputation.

For those of you who haven’t read our basic article on the meaning of D&O Insurance, you can read it here:
👉 Why Companies in Indonesia Must Have Directors and Officers (D&O) Insurance

What is Directors and Officers (D&O) Insurance?

D&O Insurance is an insurance policy that protects directors, commissioners, and company management against legal claims arising from their actions in the course of their professional duties. These claims can come from employees, shareholders, regulators, or even third parties such as customers and vendors.

Imagine if a strategic decision by a director resulted in financial losses, and then the shareholders sued. Without D&O insurance, legal costs and damages could threaten the personal assets of company leaders.

Types of Risk Covered by D&O Insurance

Here are the main risks that are usually covered:

1. Allegations of managerial negligence
   Example: investment decisions that are detrimental to the company.
2. Violation of capital market regulations
   For example, inaccurate or misleading public information.
3. Discriminatory actions against employees
   Including harassment, unilateral termination of employment, etc.
4. Lawsuits from investors or minority shareholders
5. Mistakes in mergers & acquisitions

This insurance is not designed to protect against criminal acts or intentional fraud,butprofessional errors that can occur unintentionallyintentional.

Who Needs D&O Insurance?

• Public Company (Tbk)

With such a widespread shareholder base, the potential for lawsuits from investors increases significantly. Strict oversight by the Indonesia Stock Exchange (IDX) and the Financial Services Authority (OJK) also makes D&O insurance essential.

• Large Private Companies

Even though they aren’t listed on the stock exchange, large companies with numerous employees and vendors still face risks. For example, there’s the risk of lawsuits from suppliers due to unilateral contract termination.

• Startups & Technology Companies

Rapid growth coupled with investment from various parties makes startups highly vulnerable. Internal conflicts, claims of overpromising from investors, or mass layoffs can trigger lawsuits.

• Non-Profit Organization

Foundations and social organizations are also not immune to risk. Many cases have seen donors or administrators file lawsuits because they believe funds were not used properly.

Who Should D&O Insurance Cover?

1. President Director (CEO)
2. Chief Financial Officer (CFO)
3. Chief Operating Officer (COO)
4. Commissioners and Independent Commissioners
5. Middle to senior management officials

In some cases, this insurance can also cover former directors and key employees.

The Impact of Not Having D&O Protection

Without this protection, company management is at risk of:

1. Expend personal expenses to pay a lawyer
2. Loss of personal assets
3. Professional reputation tarnished
4. Declining interest of professionals to sit on the board of directors because the risks are too high
5. Company performance is disrupted due to management not being focused

Why Are Companies in Indonesia Vulnerable to Lawsuits Against Directors?

Economic and regulatory developments in Indonesia have added to the complexity of the business world. Increased public transparency, shareholder activism, and increased government oversight have created a new risk landscape.

Triggering Factors for Lawsuits in Indonesia:

• Sudden regulatory changes (e.g. from OJK, Ministry)
• Investor dissatisfaction with company performance
• Claims from former employees
• Pressure from the public and viral social media

A real-life example: A commissioner was sued by minority shareholders for allegedly having a conflict of interest in a merger decision. Cases like this occur not only in public companies but also in startups, large cooperatives, and even family businesses.

Real Case Study: When Not Having D&O Insurance Backfires

• Case 1: Demands from Senior Employees

An HR director laid off a senior manager for efficiency reasons. The decision was deemed unprocedural and sparked a lawsuit. Without a D&O, the director would have had to pay hundreds of millions of rupiah in legal fees.

• Case 2: Investor Lawsuit over Stock Decline

Investors sued the board of directors, alleging the company’s financial statements were non-transparent, leading to losses after purchasing the company’s shares. With D&O insurance, all legal costs, settlements, and assistance are covered by the insurance.

What are the benefits of D&O insurance for companies?

1. Protecting the personal assets of the leader: Business decisions are not always well-received by everyone. Insurance protects against personal risks.
2. Increase investor confidence: The existence of legal protection shows serious and professional management.
3. Improve company reputation: The company is considered safer in terms of governance (good corporate governance).
4. Supporting operational continuity: Reduce disruption from lawsuits against key executives.
5. Attracting the best talent: Top executives tend to consider D&O protection before joining.

The Impact of Not Having D&O Protection

Without this protection, company management is at risk of:

1. Expend personal expenses to pay a lawyer
2. Loss of personal assets
3. Professional reputation tarnished
4. Declining interest of professionals to sit on the board of directors because the risks are too high
5. Company performance is disrupted due to management not being focused

How to Choose the Right D&O Insurance?

Some things you should pay attention to when choosing a D&O policy:

1. Limit of Liability: Make sure the liability limit is large enough to suit the scale of your business.
2. Retention/deductible: The smaller the retention, the more costs the insurance covers.
3. Geographic coverage: Does it cover lawsuits abroad?
4. Panel legal services provider: Does the insurance company work with a trusted law firm?
5. Exclusion: Be aware of points that are not covered, for example criminal acts or fraud.

Insurance Broker Recommendations for D&O Products

As insurance broker Independently, we at L&G Insurance Broker recommend:

1. Do a risk assessment first: Understand the potential claims based on your industry and organizational structure.
2. Compare several D&O Insurance products from various insurance companies.
3. Involve in-house legal counsel to evaluate policy wording.
4. Use the services of a licensed broker so that you get maximum protection and assistance when a claim occurs.

Comparison of Local vs International D&O Insurance

Conclusion

Amidst today’s legal and business complexities,Directors and Officers(D&O) Insurance is no longer an optional protection, but a primary need. This protection isn’t just about assets, but also about reputation and business continuity.

🔗 Also read our basic articles:
👉 Why Companies in Indonesia Must Have Directors and Officers (D&O) Insurance

If you want to get the best offer and free consultation, please contact our team at L&G Insurance BrokerWe’re ready to help you choose the best D&O coverage to suit your company’s needs.