What is Directors &
Officers (D&O) Insurance?
Directors and Officers Insurance, in another word, D&O Insurance is a form of Business Insurance that is designed to protect the directors and officers in certain liability claims while they are serving the board. D&O coverage includes directors and officers' spouses against claims by employees, competitors, investors, and customers.
The Directors' and Officers' Insurance primarily protects the company from financial risks such as legal fees, settlements, and judgments, which are costly to cover out of pocket.
Directors and Officers Insurance Coverage
In the Director's and Officers' Insurance policy, there are clauses which are called Side A - non-indemnified, Side B - indemnified, and Side C - entity coverage.
Side A (Non-indemnified)
In most states, compensating directors and officers are generally allowed; however, there are some circumstances that an insurance provider may decide to compensate or not compensate claims. Side A coverage is used to ensure that D&O policy will provide coverage for defense costs and settlements against directors and officers that an insurance provider may not repay.
Side B (Indemnified)
Also referred to as Corporate Reimbursement coverage, which provides reimburse the corporation or organization for the expenses used in defending its administration in certain. The insurance provider will cover all the legal expenses and settlements on behalf of the insured.
Side C (Entity Coverage)
It provides coverage that protects the listed corporate companies against claims from their own liability.
Directors and Officers Insurance Exclusions
In buying Directors and Officers' Insurance policy, it is essential to review all details before signing in an agreement to understand the coverage and exclusions in your policy. Directors and Officers insurance also have exclusions listed in the policy. Below are some of the essential circumstances which are beyond the Director's and Officer's coverage.
- Insured vs. insured
- Misconduct
- Defamation/ Wrong termination
- Intentional wrongdoing
- Breach of contract
Officers D&O Liability Insurance primarily covers claims, some aspects of the claim may not be covered by the policy. Basically, the policy will cover you and defend your interest up to the policy limit.
Directors and Officers Insurance Claims
Directors and Officers Liability Insurance provides protection for company executives from various types of claims that may arise. Here are some types of claims that D & O Insurance cover:
It is the most common type of lawsuit filed against a director or an officer. An employee can decide to file a lawsuit if he or she may have been mistreated in the company. Here are the following claims that an employee can file against you:
- Discrimintaion
- Sexual Harassment
- Invasion of privacy
- Wrongful termination
- Disobedience to the workplace laws
If a customer believes your company did not provide enough or proper service, he or may decide to file a complaint. The customer may file the following claims:
- Failure in services or products
- Overpricing
- Discrimination
Investors may file lawsuits for damages that arise in case directors or officers fail to perform their duties. If investors are dissatisfied with the results of the management decisions, they may file the following claims:
- Negligence of duties that results in financial losses or bankruptcy
- Failing to file annual reports
- Corruption of company assets
- Failure to adhere to the company's laws
- Violation of fiduciary duties
Competitor claims may arise when the directors or officers of your company are involved in wrongful acts that damaged the competitor's firm. Common claims include the following:
- Advertising and Personal Injury
- Violation of intellectual property rights
- Anti-competitive behavior
There may be times wherein government or regulatory agencies will conduct an investigation to corporations. Regulator claims can come up if wrongful activities are found in your company or you fail to comply with the established laws or regulations.
What is a reasonable level of D&O coverage?
From investors to the scope of business operations, every firm is different. Each area of a business is affected by the decisions and actions of the directors or officers. That is why selecting the level of your liability coverage is not that simple. Typically, larger and highly developed companies have higher possibilities of risks. Moreover, employees,investors, and executives are all exposed in the association of occupying management positions. Therefore, directors and officers will need to choose the right level of their coverage based on the specific situations of their company.
Generally, directors and officers need to analyze their company's ability to fulfill its indemnification commitments. This is because any shortcomings without the protection of insurance will leave the company vulnerable.
If a business is about to become bankrupt and the indemnification is not available, the executives of the company need to make sure that the limit of liability is enough when claims arise. Companies functioning within unstable and disputable industries have to consider setting policy limits that are high enough to compensate when the worst happens. The executives also need to apply wise strategies in their deductibles.
Overall, the firm's financial capacities and resilience to risk helps determine the reasonable level of Directors and officers liability coverage. If a company aims to take merger and acquisitions as well as raise capitals, the executives must keep in mind that these are high risk activities. The directors and officers will then need to acquire for higher limits.
Importance of Having Directors & Officers Insurance
Making changes or decisions on behalf of your company is a tough job as a director and officer. It may lead your company to certain types of claims. Every worker can make mistakes; however, as a director, it is your responsibility if your company will face significant risks caused by your leadership. Buying Directors' and Officers' Insurance policy is the best way to protect yourself from certain liability risks.
Is your D&O Coverage ready for individual liability? InsureHopper's affiliated agents and insurance carriers offer help to get you the best insurance coverage for your business needs. We will help you find the most comprehensive insurance provider yet offer the best rate! Get a Free D&O Insurance Quote today to compare rates!