Posted on October 2, 2019 in Blog
Directors and officers (D&O) liability insurance protects the personal property and wealth of corporate directors and officers, and their spouses, in the event they are personally sued by employees, shareholders, vendors, competitors, investors, or other parties. These could be for actual or alleged wrongful acts while managing a company.
The insurance, which in some cases also protects the company, covers legal fees, settlements, and other costs. D&O insurance is the financial backing for a standard indemnification provision, which holds officers not responsible for losses due to their role in the company. However, corporate governance, corporate law, and the fiduciary duty owed to stakeholders and beneficiaries will still be accounted for and illegal acts or illegal profits will not be covered.
Directors and officers can be sued for a variety of reasons related to their company roles, including:
Any business with a corporate board or advisory committee should consider investing in D&O insurance, including non-profit organizations. A company does not have to report revenues in the millions for its directors and officers to be personally sued over their management of company affairs. Smaller businesses with few assets may need protection just as much as large corporations.
A typical D&O insurance policy designed for privately held business may include three types of coverage:
Before accepting a seat on a board, directors and officers should ensure a company has the right D&O policy for their position by asking a trusted attorney to review the document. Stay tuned for part II of the blog, where we explain why having a D&O policy is vitally important.