While business insurance policies by definition provide coverage for the business itself, individual company officers may still be personally exposed to financial losses resulting from a lawsuit. To protect your company’s leadership, you may want to consider purchasing directors and officers (D&O) liability insurance.
Directors and officers is a type of liability insurance that covers individuals for claims made against them while serving on a board of directors and/or as an officer. This type of policy can be written to cover directors and officers of for-profit businesses, privately held firms, not-for-profit organizations and educational institutions. There are several elements—called “Sides”—to a D&O policy, including:
A wide range of claims against a business have the potential to target company leadership for responsibility—and liability. Business leaders can be held responsible for a company’s failure to comply with regulations and to provide a safe and secure workplace. In addition, if a company is found liable for losses because of operational failures and mismanagement, directors and officers may be exposed to liability as well. The types of claims that may target company leadership individually as well as the company itself typically include:
Standard exclusions in a D&O policy typically include:
Aside from paying for claims against company leadership, there are several other benefits to carrying directors and officers liability insurance, including a company’s ability to:
There are several types of D&O policies, defined by what liabilities, legal costs and other exposures are covered. You should select coverage based on risks and how your business is organized. Your company’s bylaws or articles of incorporation may provide certain protections—or indemnification—for directors and officers. You should seek guidance from your insurance professional about this somewhat complex, technical type of insurance.