Directors & Officers Liability Insurance
What is Directors & Officers Liability Insurance?
Directors & Officers Liability Insurance (D&O) coverage is specifically designed to insure corporate directors and officers against claims, most often by stockholders and employees, alleging financial loss arising from mismanagement.
There are three insuring agreements of D&O coverage.
The first reimburses the insured organization when it is legally obligated to indemnify corporate directors and officers for their acts. The second provides direct coverage to directors and officers when the organization is not legally obligated to indemnify them. The third type of coverage is usually available as an optional basis for an additional premium and insures the corporate organization in connection with securities it has issued.
Think of Directors and Officers Insurance as a management Errors and Omissions policy. One out of four firms have dealt with a D&O claim in the past three years with an average settlement well into six figures. Get the protection you need by reaching out to us!
What Businesses Need Directors & Officers Liability Insurance?
Many private company executives understand that they and their fellow directors and officers are at risk from lawsuits filed by investors, customers and others. While private-company litigation is less prevalent than risks faced by public companies — the risk exists. It is prudent to take steps to minimize these exposures such as the purchase of D&O liability insurance, and instituting a corporate governance program. Professional help (such as HR consultants and specialized attorneys) should be utilized to establish policies and procedures.
Almost 20% of executives or their companies have been sued during the past few years.
Only 40% of all D&O lawsuits came from shareholders. Many officers and directors believe that there is no threat of a director or officer liability lawsuit because all the stock is "closely held." Nothing could be further from the truth.
The remainder of the lawsuits against directors and officers come from employees (existing and former), unions, customers, competitors, banks and other lending institutions, suppliers, governmental entities, acquisition targets and vendors.
Many D&O policies are now packaged with employment practices liability insurance, crime insurance and fiduciary liability insurance to keep the cost down.
How Much Does Directors & Officers Liability Insurance Cost?
The cost of each D&O policy depends on variable factors such as:
Legal history
Company debt
Assets
Revenue
Industry
What Does Directors & Officers Liability Insurance Cover?
There are three insuring agreements covered by directors and officers insurance: Side A, Side B, and Side C.
Side A: Typically seen in bankruptcy cases when a lawsuit is brought against directors and the company cannot cover legal defense due to insolvency.
Side B: Will cover the entity after having paid legal fees and/or settlement to individuals named in lawsuit.
Side C: Provides coverage for the company itself, if it is named along with individuals named in lawsuit
What Does Directors & Officers Liability Insurance Not Cover?
Lawsuits between directors and officers within the company are typically not covered.