Business comes with risks. To help businesses address these risks, insurers offer a range of coverage tools. One commonly-used tool is directors and officers liability insurance, or D&O insurance.
What is D&O Insurance?
Directors & officers (D&O) liability insurance protects the personal assets of corporate directors and officers if they ever face a personal lawsuit from an employee, vendor, competitor, or another party. The coverage applies to lawsuits that allege misconduct in the director’s or officer’s managing of the company.
D&O insurance typically covers the company as well as the individual director or officer. If a lawsuit occurs, D&O insurance covers legal fees, settlements, and other costs related to the litigation.
What Are Board Members’ Responsibilities With Respect to D&O Coverage?
Directors and officers may face lawsuits for many reasons that relate to their actual or perceived actions in running a company. Common accusations in such lawsuits include:
- Breach of fiduciary duty to the company
- Misrepresentation of company assets
- Misuse of company assets, including funds
- Negligence in corporate governance
- Poaching a competitor’s customers
- Theft of intellectual property or trade secrets from competitors
Directors and officers have a duty to avoid actions like these. They also have a duty to refrain from criminal activity, including the collection of illegal profits, as part of their work in running the company.
D&O coverage generally doesn’t apply to illegal activities. However, it can provide necessary coverage when civil allegations are brought against one or more directors or officers.
How D&O Coverage Protects You
Generally speaking, directors and officers of a corporation enjoy “indemnification.” If a loss occurs due to a decision they made while running the company, the director or officer isn’t held personally liable for that loss.
D&O coverage provides the financial cover to make this sort of indemnification possible. It demonstrates to potential directors and officers that their participation in the company won’t result in their personal financial ruin if a disgruntled customer or employee decides to sue.
Looking for the support your corporate directors and officers need so that they can focus on governing the organization effectively?
Talk to the team at Odell Studner. We’ll help you identify and meet your insurance needs. Contact us today to learn more.