No matter the size of your business, you are always at risk for lawsuits. Decisions made from a board or management could lead to a lengthy and costly legal battle. Directors & officers are responsible for making the tough choices that can make, or break, a company. They must keep in mind the best interests of employees, customers and shareholders. Every decision has an effect on everyone. But don’t fret, there are ways to protect yourself and your business. How you ask?
Directors & Officers Insurance
Often referred to as D&O, Directors & Officers Insurance protects executives against the consequences of any alleged or actual “wrongful acts” they commit while performing regular supervisory duties.
Isn’t this what my liability insurance is for?
A commercial general liability insurance policy provides coverage for claims arising from property damage and bodily injury. D&O insurance provides coverage for a “wrongful act,” such as an actual or alleged error, omission, misleading statement, neglect or breach of duty. A D&O policy will provide defense costs and indemnity coverage to the entity listed on the policy, which may include:
- Coverage for individual directors & officers
- Reimbursement to the business for a contractual obligation to indemnify directors & officers who serve on the board
- Protection for the organization or entity itself
To learn more about a Commercial General Liability policy – click here.
What coverage’s are included?
Typical coverage will include:
- Entity coverage
- Payment priority for insured persons
- Severabiltiy of the insured as well as severability of ht application
- Coverage over time – for past, present, and future directors & officers
- Pay on behalf clause
A “fraud” exclusion is typically included in a directors & officers insurance policy. This eliminates coverage for losses due to dishonest or fraudulent acts or omissions, or willful violations of any statue, rule or law.
There are additional endorsements that can be added.
Some Directors & Officers insurance policies can be endorsed to provide employment practices liability and/or fiduciary liability protection.
- EPL Endorsement – broadens coverage, but often does not provide a duty to defend clause and are subject to a substantial deductible.
- Fiduciary Liability Endorsement – provides coverage for liabilities arising out of ERISA, where fiduciaries can be held personally liable for losses to a benefit plan incurred as a result of alleged errors, omissions or breach of their fiduciary duties.
Protect your MVPs
Large or small business, it doesn’t matter. The legal cost to defend a director is substantial, as are the potential penalties that can be personally incurred. Due to the personal liability risk (not covered under a personal insurance policy), protecting the board can be a challenge.
To help ensure both your officers’ and the company’s well-being, a Directors & Officers Insurance policy is part of a comprehensive risk financing strategy.