Protecting your top talent should be a main priority for any business. Directors & officers (D&O) insurance is specifically designed to protect board members in the event that they are sued over decisions they made on behalf of your company. D&O insurance typically covers corporate directors and officers, as well as their spouses. This type of liability insurance helps cover any defense costs and damages that arise from awards and settlements. It may also cover associated legal fees and other costs that a business may incur as a result of wrongful act allegations or lawsuits.
How Directors & Officers Insurance Works
Directors & officers insurance helps protect the personal assets of corporate directors and officers in the event that they are personally sued by customers, employees, competitors, vendors, investors, or other parties. There are a number of reasons why a director or officer may be sued, such as fraud, breach of fiduciary duty, theft of intellectual property, misuse of company funds, lack of corporate governance, misrepresentation of company assets, or failure to comply with workplace laws. However, most illegal acts or profits are typically not covered under D&O insurance.
D&O insurance applies to any professional who serves as a director or officer for a non-profit organization or for-profit business. This type of insurance policy acts similarly to management liability insurance which covers the liabilities of a corporation, as well as the personal liabilities of directors and officers of the corporation. There are several elements to a D&O insurance policy known as “sides.” Side A protects corporate directors and officers when a company cannot indemnify the individuals. On Side B, an organization is reimbursed when the individuals are indemnified. Side C, also known as entity coverage, involves naming the directors, officers, and insured organization as co-defendants in a securities suit.
What D&O Insurance Covers
Directors & officers insurance generally cover settlements, legal fees, and other costs that result from a lawsuit due to alleged wrongful acts. A D&O insurance policy may also provide coverage for a business if it is required by bylaws or statute to indemnify directors and officers. Exactly who is covered within a business depends on the level of protection that a company purchases. Most small and large businesses in both the private and public sectors purchase a combination of the three main types of D&O insurance which includes Side A, B, and C.
The amount of coverage that a business requires can range from company to company. In terms of the time frame that a claim can be covered, most D&O insurance policies will only cover claims that were filed within the policy period. However, this does not mean that the negligent act had to have occurred during this time frame. There are several exclusions that most D&O policies will not cover, including any type of fraud, prior claim notice, personal profiting, pending and prior litigation, bodily injury or property damage, accounting of profits, and insured versus insured claims.
Importance of D&O Insurance
Private, public, and non-profit companies all face similar D&O litigation risks. Any business that has an advisory committee or corporate board should consider investing in directors & officers insurance. Remember that you do not have to be a multi-million dollar corporation for your directors and officers to be sued for alleged wrongdoings in company affairs. Even smaller businesses with few assets should be protected. Aside from paying for costly claims, directors & officers insurance offers numerous other benefits, such as ability to retain talented leaders. Most professionals would be reluctant to join your company if they were exposed to potential personal liability.
Having D&O insurance is also important from an investment standpoint. This is because many private equity and venture capital firms require businesses to have D&O insurance coverage before they will make an investment. Most importantly, businesses want to avoid the extravagant costs associated with business lawsuits. Even if your directors and officers were eventually exonerated of any wrongdoings, your company may still face substantial legal fees. When you possess a D&O insurance policy, most of these legal fees are covered. In short, if you are exposed to certain liabilities that a D&O policy could cover, it is wise to gain coverage.
Learn More About D&O Insurance
Directors & officers insurance is a crucial coverage for many businesses and organizations. Each policy can be specifically structured to the interests of a company based on their unique risk profile and coverage needs. Having ample coverage options allows businesses to make more informed decisions when structuring their policy. D&O insurance can generally be purchased as a packaged or stand-alone policy, with one side of all sides, or with specialty coverages like investigation coverage, employed lawyer insurance, or reputational insurance. For more information about D&O insurance or for help obtaining a policy, contact professional entertainment insurance brokers.