Commonly referred to as D&O insurance, Directors & Officers Liability Insurance is held by a company to cover damage or defense costs stemming from wrongful acts committed by its directors or officers. Although the policy personally protects the organization’s executives and not the company as an entity (as is the case with general liability insurance policies), most firms choose to carry it for a variety of reasons. This article will discuss these reasons in greater detail, while also providing an overview of the types of liabilities that the insurance covers against.
Why Companies Buy D&O Insurance
The primary reason that companies choose to carry D&O insurance is to help them retain executive talent. In their role as decision makers for the organization, directors and officers tend to become exposed to far more legal liabilities than do the rank and file employees. Because some of these liabilities can result in the executive being the subject of a personal claim, few upper management professionals will be willing to work for a firm that does not offer them some form of protection from any judgments levied against them as a result of their actions for the company.
By protecting its upper management members with Directors & Officers Liability Insurance, a company enables them to make the types of aggressive strategic decisions required to succeed in today’s competitive business environment with a lessened likelihood of being personally sued.
What Does Directors & Officers Liability Insurance Cover?
In their capacity as executive-level managers, directors and officers are required to make a number of decisions that can potentially leave them open them to legal liabilities. The typical D&O insurance policy protects the managers from four of the most common types of claims filed against them:
- Wrongful Termination or Discriminatory Hiring Practices
- Disclosure of Private Information
- Investment Management Decisions
- Issues Related to Conflicts of Interest
While these four categories of claims are certainly the most prevalent, they by no means represent all of the potential liabilities a director or officer may be exposed to. It would also be a mistake to assume that only managers of major corporations need this type of coverage. The fact is, small business liability insurance policies and commercial general liability insurance policies alike can both be augmented to add D&O insurance coverage for members of the management team.
Where to Find D&O Insurance
Just like any other form of business coverage, Directors & Officer Liability Insurance policies are offered by a wide range of general liability insurance companies. As long as you have an accurate idea of the types of liabilities that your executives will be exposed to, and roughly how much coverage they will require, you can solicit a variety of competitive quotes online that will fit both your needs and your budget. Getting the right D&O insurance isn’t hard, and acquiring it will ensure that your directors and officers are able to perform at the high level your company needs in order to be successful.