If your company has a board of directors or other high official positions and face a certain amount of liability risk, you may consider taking out Directors & Officers or D&O liability insurance to protect them.
Available from many business insurance agencies, this coverage provides important protection to those responsible for making critical decisions for the company that puts them at a personal risk of liability.
What Is Directors & Officers Liability Insurance?
Directors & Officers Liability Insurance or D & O is a policy taken out by a business to cover their directors and officers against liability claims filed for decisions they made on behalf of the company.
As chief decision-makers, these individuals may be exposed to a considerable personal risk if decisions they made results in claims against your company and them for their role in the decision-making process.
Because these claims could end up personally affecting the director or officer involved, many companies choose to protect these employees by purchasing this policy from their business insurance agency.
How Does This Insurance Protect Your Directors and Officers?
Directors & Officers Liability Insurance is available to for-profit and not-for-profit businesses, privately held companies, and educational institutions with three different protective elements or sides.
When claims are made against a Director or Officer, D & O insurance responds to various needs:
- (Side A) Insures company directors and officers from any risk to their own personal assets.
- (Side B) Reimburses the company if they incur costs on behalf of company directs and officers when a claim is made.
- (Side C) Provides protection if a claim is made against the company itself.
What Does D & O Liability Insurance Protect?
Buying D & O insurance from your business insurance company primarily provides critical protection for your Directors and Officers in situations where their decisions lead to lawsuits over stock performance brought forth by shareholders.
It also protects these individuals against lawsuits claiming company mismanagement, ignoring of fiduciary duties, non-compliance with laws or regulations, environmental issues, company misrepresentation, questionable employment practices, cyber-liability, and other accusations of similar wrongdoings.
Because these liability insurance policies are designed to protect a business and its officers against the managerial decisions their Directors and Officers may make, they do exclude certain other liabilities such as property damage, bodily injury, fraud, illegal compensation or accounting practices, prior or pending litigation, and more.
These policies are different than other liability policies as they are written on an individual claims-made basis and must be reported either during the covered policy period or very shortly afterwards.
D & O policies also provide shrinking benefits, which means that the policy limit benefits decrease as defense costs are paid unlike most business liability insurance that pays defense costs in addition to the carried policy limits.
The Protection of D & O Liability Insurance
When a business decision causes unintentional negative results, the Directors and Officers in your company responsible for those decisions could be held personally liable.
With other business liability insurance, this policy can protect your business and its important decision-makers in the event that an unfortunate choice causes financial loss and any resulting legal claims!