What exactly is D&O insurance?
Simply put, directors and officers insurance is a type of liability insurance covering directors and officers for claims made against them while serving on a board of directors and/or as an officer.
Just suppose for a moment that a lawsuit was brought against you officers and directors. If you had a D&O policy, it would provide reimbursement for any losses. The policy would also help offset any defense costs in the event that a lawsuit is filed over alleged unlawful acts performed by your directors and officers. It covers civil, criminal and regulatory investigations/trials as well.
If you are a director or officer of a health care facility, a non-profit organization, private company, or community association, then your personal assets may be at risk.
Why Do You Need Directors & Officers Insurance?
Claims are brought against corporate officials everyday. Such claims usually include allegations of:
- Breach of fiduciary duty
- Securities law violations
- Employment practice liabilities
- Antitrust or deceptive business practice
The thing is that these lawsuits are very expensive to defend. In fact, many average over $300,000 to defend. Even worse, these lawsuits potentially expose the individuals to significant personal liability.
What does a typical policy cover?
A typical D&O policy will only cover "wrongful acts" as defined under the policy. For example, while serving in the capacity for the organization, it may cover certain:
What are the D&O policy exclusions?
As you can imagine, directors and officers insurance will not protect you from intentional criminal acts or illegal profits.
Other exclusions include:
- Criminal fraud
- "Insured versus insured" exclusion
- Financial detail mistakes on the application
- Failure to disclose material information
- Willfully providing inaccurate information
- Mixing personal and business assets
- Failure to disclose conflicts of interest
Don't make this common mistake
Unfortunately, many directors and officers assume they are indemnified automatically by their organization. The truth is that when it comes down to it, the company's indemnification is often broad, but not unlimited. Simply stated, this means that an officer's and director's personal assets could be in danger. Thankfully, our D&O insurance policies are often more affordable than you realize.