Directors & Officers Liability Insurance

Photo by serkanozalp/iStock / Getty Images

What is Directors & Officers Liability Insurance (For Profit Companies)?

Directors & Officers and Entity Liability (D&O) Insurance coverage is specifically designed to help protect the personal assets of a privately owned company's directors and officers, as well as the financial well-being of the company itself in the event they are sued in conjunction with the performance of their duties as they relate to the company. Think of Directors and Officers Insurance as a management Errors and Omissions policy.


Do I really need insurance for this?

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, nonetheless the risk exists. Obviously, it is prudent to take steps to minimize these exposures. Such steps include 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. 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. Only 40% of all D&O lawsuits came from shareholders! 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, vendors, and others.  Many D&O policies are now packaged with Employment Practices Liability Insurance, Crime Insurance, & Fiduciary Liability Insurance to keep the cost down.