Directors and Officers Insurance

Directors and officers liability insurance, also sometimes referred to simply as D&O insurance, is designed to protect a corporation’s director’s and officers’ personal assets. Protection is also extended to the spouses of directors and officers. This protection is enacted when the directors and officers are sued by investors, employees, customers, competitors, or vendors. Such legal action might be brought or wrongful acts associated with the company’s management, whether alleged or actual.

Such insurance typically protects the company in addition to directors and officers. Coverage usually covers not only legal fees but also other expenses, such as settlements. It’s not uncommon for officers and directors to require the companies they represent to provide not only D&O insurance but also an indemnification provision. This provision will ensure the officers are not held responsible for any losses the company may experience due to their position.

Working with an independent insurance agent can help you to determine whether your company might benefit from the director’s and officer’s insurance coverage.

Why Might Directors and Officers Require Protection?

The directors and officers of a company could face litigation due to several reasons for their position in the company. Among these reasons include:

• Company asset misrepresentation
• Company funds misuse
• Breach of fiduciary duty
• Fraud
• Theft of intellectual property
• They are not complying with laws related to the workplace.

It should be noted that directors’ and officer’s insurance do not usually cover illegal profits or illegal acts.

Why Would Your Company Require Directors and Officers Insurance Coverage?

There tends to be a standard train of thought that only public companies need D&O coverage. This is not the case, however. Whether they are private or the public, all types of companies could face the risk of litigation and can benefit from D&O protection. Even non-profits could be sued and, as such, can benefit from the protection offered by directors and officers insurance policy.

There is not even a need for a company to have a considerable revenue to need D&O coverage. Regardless of the size of a company, it’s still entirely possible for the company’s directors and officers to have a personal lawsuit filed against them regarding how they have managed a company. A smaller company might face an even greater financial risk only because they have smaller resources.

What You Need to Know about Directors and Officers Liability Insurance

Claims for directors and officers liability insurance are paid to the organization or the directors and officers as reimbursement for expenses associated with a lawsuit in the event legal action is filed. This form of coverage could also cover regulatory and criminal investigations. It’s not unusual for directors and officers to have both criminal and civil action brought against them at the same time.

Different Types of Directors and Officers Insurance Policies

There are different types of D&O policies. The different types of policies are usually based on the variety of organizations for which it is purchased and the risks that a particular organization might face. Considering the various types of D&O liability insurance, it’s essential to ask for advice from an independent insurance agent with experience in this specific form of coverage. It is far more common for the organization to purchase content for multiple people instead of the individual purchasing the range on their own.

When Does D&O Liability Insurance Not Cover Claims?

If an organization chooses to withhold material information deliberately or provides erroneous information, payment may be withheld based on misrepresentation. This is based on a clause known as severability.

Do Companies Without Shareholders Need Directors and Officers Liability Insurance?

Even companies without shareholders may still benefit from a D&O liability insurance policy. This is because many other parties beyond shareholders can bring legal action. Parties who could potentially bring legal action include creditors and even employees, as well as others. Even privately-held companies are at potential risk.

What Are Shrinking Limits?

One element of a director’s and an officer’s insurance policy that should be understood is a feature known as a shrinking limit. A D&O system is different from a general liability policy in that a public liability policy does not include the cost for legal defense in the policy’s limits. By comparison, directors and insurance policies do include expenses associated with legal protection. In the event a claim is filed, legal costs typically comprise a significant percentage of the claim.

How Much Does a Directors and Officers Policy Cost?

When considering the purchase of a director’s and officers’ liability insurance policy, it’s only natural to wonder about such a system’s potential cost. Numerous factors could impact the price of a D&O liability policy. These factors include:

• The size of the company
• History of claims
• Company profits and debts
• History of mergers and acquisitions
• The background of all company directors and officers

The Advantages of Working with an Independent Insurance Agent for D&O Coverage

Working with an independent insurance agent when you are searching for directors and an officer’s insurance coverage will allow you to find the best coverage level at the best price. Given this type of insurance policy’s critical nature, it is essential to explore the many options available. An independent insurance agent with specific expertise in D&O coverage can help you discover everything you need to know to choose the right policy and coverage level.