Directors and Officers Insurance
Directors and Officers Liability Insurance (D&O) protects past, current, and future directors and officers of for-profit or non-profit companies from damages resulting from alleged or actual wrongful acts they may have committed in their positions. The policy provides protection in the event of any actual or alleged error, misstatement, omission, misleading statement, or breach of duty. In addition, some policies extend the same coverage to employees. It can also be thought of as management errors and omissions coverage.
D&O coverage generally includes Employment Practices Liability (EPLI) and sometimes fiduciary liability. EPLI is designed to cover harassment and discrimination suits and is where the vast majority of liability exposure is.
D&O is often confused with Errors & Omissions Liability (E&O). The difference is E&O provides protection for performance failures and negligence with products and services. D&O covers lapses of the performance and duties of management. For most businesses it is important to have coverage for both E&O and D&O.
When is D&O coverage needed?
Members of a board of directors will frequently require this type of coverage to protect their personal assets before joining a board. Investors will also usually require D&O coverage as part of the conditions of funding. Having employees increases the risk of employment practices lawsuits against management — which usually can be covered under D&O insurance.
Why is D&O coverage so important?
Claims from stockholders, employees, and clients will be made against the directors of the company and the company itself. Since a director can be held personally responsible for acts of the company, most directors and officers will demand to be protected rather than put their personal assets at stake.
Generally investors no matter how deep their belief in your company, as well as members of your board of directors, will generally not be willing to risk their personal assets. They will require D&O coverage as part of their arrangement for involvement in your company.
In addition, employment practices lawsuits are the single largest area of claim activity under D&O policies, in fact over half of all claims are employment practices related. Find out more information about this key risk management component for your business.