Tim Elliott
Welcome to Lawgical, the UAE’s first and still the only regular legal podcast. My name’s Tim Elliott, and I’m here with the managing partner of the Dubai-based legal firm, Yamalova & Plewka, at their offices in JLT, Jumeirah Lakes Towers, here in Dubai. And here’s Ludmila Yamalova.
Ludmila Yamalova
Good to see you. Always a pleasure to be here with you, Tim. Thanks for having me.
Tim Elliott
This time on Lawgical, we’re discussing D&O Insurance—Directors and Officers Insurance. Two questions to start with, Ludmila: what is it, and who benefits from insurance like this?
Ludmila Yamalova
As you mentioned, it’s Directors and Officers Insurance, hence the acronym D&O. Who benefits from it? Many people, particularly in the UAE. Practically every company, and specifically its senior employees and directors, would benefit from this coverage.
At a high level, D&O Insurance provides financial protection to directors and officers of a company. Surprisingly, though, in the UAE, this type of insurance is still very rare and highly uncommon. Many of our clients are unaware of it, and when I bring it up, it’s often met with surprise and confusion—similar to your initial reaction, Tim!
This is especially surprising because the very individuals who should have had D&O Insurance for years—senior executives and decision-makers—are often the ones who lack it. Let’s dive a bit deeper into what D&O Insurance actually is.
Tim Elliott
Sure, let’s get into it.
Ludmila Yamalova
D&O Insurance is essentially a type of insurance policy designed to cover senior executives and managers of a company. Think of it as financial protection for individuals at a company with significant decision-making authority.
This is different from other familiar types of insurance like health insurance, travel insurance, or property insurance. D&O Insurance specifically covers a category of employees—senior executives—against liability claims that arise due to their decisions or actions made on behalf of the company.
Tim Elliott
That sounds essential for senior leaders.
Ludmila Yamalova
It absolutely is. However, it’s crucial to differentiate D&O Insurance from professional indemnity insurance. The latter is more common in the UAE and often a requirement for professionals such as lawyers, doctors, accountants, and certain types of engineers. D&O Insurance, on the other hand, is not mandated by law here, which is why many companies don’t offer it.
Professional indemnity insurance covers individual professionals for errors or negligence within their specific field of expertise. For example, as a lawyer, I have professional indemnity insurance that covers legal advice or services I provide. But that wouldn’t cover decisions made by the company’s HR manager or financial officer. D&O Insurance would step in to protect those senior executives.
Tim Elliott
So, D&O Insurance protects senior leaders beyond just their professional expertise?
Ludmila Yamalova
Exactly. Let me give you an example. Imagine a company is fined because its employees were working without proper visas. In the UAE, each undocumented employee could result in a penalty of AED 50,000 to the company. On top of that, the manager responsible for those employees might also face personal liability, including fines or even criminal charges.
In such cases, D&O Insurance would cover the legal costs for the manager to defend themselves, whether in civil or criminal court. Without it, the manager would need to bear those expenses personally, which can be financially and emotionally devastating.
Tim Elliott
That example really drives the point home.
Ludmila Yamalova
Here’s another one. Say a company terminates several employees at once, resulting in claims for end-of-service benefits totaling millions of dirhams. If the company doesn’t have the funds to pay these claims, the senior management—such as the HR manager or directors—could be held accountable.
D&O Insurance would provide the financial resources to cover legal defense costs and protect the individuals involved. This ensures that directors and officers are not personally ruined for decisions they made in good faith, often under the instructions of shareholders or other senior executives.
Tim Elliott
It’s surprising that this isn’t more common here.
Ludmila Yamalova
Indeed. Part of the issue is cultural. In the UAE, insurance is often seen as an unnecessary expense unless it’s legally required. For example, home contents insurance is still quite rare here, even though it’s widely adopted in other countries.
D&O Insurance suffers from the same lack of awareness and promotion. Many senior executives take on high-ranking titles like CEO or Chairman without fully understanding the legal and financial liabilities that come with those roles. When trouble arises, these individuals are the first to be held accountable.
Tim Elliott
So, what’s your advice to professionals taking on senior roles?
Ludmila Yamalova
I strongly advise negotiating D&O Insurance as part of your compensation package. It’s a relatively low-cost benefit for companies, but it provides significant protection for employees.
For example, if I were considering a senior position, I would prioritize having D&O Insurance over a slightly higher salary. This insurance not only protects your financial security but also your peace of mind in case of unforeseen legal challenges.
Tim Elliott
It seems like this is something the UAE business community needs to adopt more broadly.
Ludmila Yamalova
Absolutely. As the UAE continues to evolve with new regulations—like corporate tax, anti-money laundering laws, and economic substance requirements—companies face increasing compliance burdens. D&O Insurance is an essential tool to protect senior managers navigating this complex landscape.
It’s also worth noting that D&O Insurance policies can vary significantly. Some cover specific geographic regions, while others exclude high-risk jurisdictions like the US. It’s important to carefully review the policy details, including the coverage amounts and exclusions, to ensure it meets your needs.
Tim Elliott
Thank you for explaining this so thoroughly, Ludmila.
Ludmila Yamalova
My pleasure, Tim. D&O Insurance is an important topic, and I hope more professionals and companies in the UAE start to recognize its value.
Tim Elliott
That’s another edition of Lawgical, this time focusing on D&O Insurance—Directors and Officers Insurance. Thank you, Ludmila, for sharing your expertise.
Ludmila Yamalova
Always a pleasure, Tim.
Tim Elliott
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