Directors and officers liability insurance coverage, or D&O insurance, is one of the most important types of business insurance to carry – yet it’s also one of the least well-understood.
Here, we’ll unpack what D&O coverage is and what benefits it offers your business. We’ll also discuss why companies should carry D&O coverage even if they are privately held corporations.
What is D&O Insurance?
D&O insurance protects companies and their leadership when claims arise from leaders’ decisions and actions taken while leading the company. Common claims covered by D&O insurance include lawsuits related to allegations of wrongdoing against a company’s leadership.
Typically, the corporate form protects directors and officers from personal liability for decisions made in the course of carrying out lawful business. In some situations, however, a corporation can choose whether or not to indemnify its leadership. If the corporation chooses not to indemnify its directors and officers, they may face liability – and the potentially steep costs that come with it.
Why Privately Held Companies Need D&O Insurance Coverage
If your privately held company doesn’t have a board of directors, you may not believe you need D&O coverage. If your company has leadership, however, D&O coverage is essential to protect those leaders in the face of a lawsuit – even if they are not formally organized as a board.
Situations in which a company may need directors and officers liability coverage include:
- The company is facing financial uncertainty, making it difficult or impossible to indemnify directors and officers.
- The company is insolvent, or indemnifying directors and officers would lead to insolvency.
- One or more laws prevent the company from extending indemnification to its directors and officers in the particular circumstances of a lawsuit.
Privately held and closely-held companies can face greater risk in these situations. When there are few owners, directors, or officers to name in a lawsuit, those that are available may bear the full brunt of liability exposure. Protecting them may cost the company its solvency and continued existence. D&O insurance provides the coverage necessary to protect these leaders.
Does your company have the coverage you need to run successfully?
Connect with the team at Odell Studner today! We’ll help you ensure that you have the insurance coverage you need, so that you and your team can focus on achieving your business goals.
