Directors and officers (D&O) liability insurance is insurance coverage specifically designed to protect individuals from personal losses if they are sued as a result of serving as a director or an officer of a business or other type of organization.
It protects the personal assets of corporate directors and officers, and their spouses, in case they are sued by employees, vendors, competitors, investors, customers, or other parties, for actual or alleged wrongful acts in managing a company.
This applies to anyone who serves as a director or an officer of a for-profit business or nonprofit organization. In addition to insuring against personal losses, it can also help reimburse a business or nonprofit for the legal fees, settlements, and other costs incurred in defending such individuals against lawsuits.
Directors and officers can be sued for many reasons including:
- Breach of fiduciary duty resulting in financial losses or bankruptcy
- Misrepresentation of company assets
- Misuse of company funds
- Failure to comply with workplace laws
- Theft of intellectual property and poaching of competitor’s customers
- Lack of corporate governance
Policies can be written to insure against a variety of hazards, but they generally make exclusions for fraud, criminal activity, and illegal profits.
Also, most policies contain “insured vs. insured” clauses, whereby no claim is paid when current or former directors and officers sue the company. This prevents the company from profiting from deceit or conspiracy.
It’s a common misconception that D&O claims only effect public companies. However, public, private, and non-profit companies can all be subject to litigation.
Any business with a corporate board or advisory committee should consider investing in D&O insurance.
Small and large companies alike can be devastated by D&O claims. In some ways, smaller businesses are at more of a risk than larger businesses with deeper pockets.
D&O policies can take different forms, depending on the type of organization and the risks it faces.
It’s best to seek out an insurance company with experience in this specialized field. The policies are generally purchased by the company or organization to cover a group of individuals rather than by the individuals themselves.
At Ford Insurance Agency we have helped many clients in the Tidewater area obtain D&O policies.
Let us help you determine if a Directors and Officers Insurance Policy is right for your company or organization.