In today's increasingly complex and litigious business environment, your corporate officers and board of directors — the brains of the company — need protection against personal financial liability arising from their corporate activities.
These people are highly vulnerable to lawsuits by investors, employees, vendors, competitors, customers, regulators and others, alleging misconduct for a wide variety of activities, such as:
Common allegations
- Providing inaccurate or unlawful advice.
- Fraud and malfeasance.
- Misrepresentation of company assets.
- Failure to comply with workplace laws.
- Poor hiring decisions. (A Towers Perrin survey found that 40% of all reported D&O claims involved flawed employment practices.)
Directors and Officers (D&O) Insurance will pick up the tab for legal fees, settlements, and other expenses from such litigation. This gives your officers and directors financial peace of mind in carrying out their corporate activities, and provides a valuable incentive for attracting and keeping quality people who can help grow your business.
There's a widespread need for this coverage. One in six company executives (17%) surveyed by Inc. Magazine believe that their business will experience a D&O-related loss within the next year.
These policies usually offer two types of coverage known as "sides." Side A protects directors and officers from personal financial liability if the company is unable to indemnify them (for example, during a bankruptcy or dissolution). Side B coverage reimburses the company if it indemnifies directors and officers (for example, when shareholders file suit against them). A third coverage — sometimes known as Side C — comes into play when both the company and individual officers and directors face lawsuits.
For specialized options tailored to particular fields, see Medical Equipment Directors and Officers (D&O) Insurance for an example of industry-specific considerations.
To learn more about how this coverage can help minimize the financial risks of litigation for your company and your top people, feel free to ask an agent.
Frequently Asked Questions
What does D&O insurance typically cover?
It usually covers defense costs, settlements, and judgments arising from claims against directors and officers for alleged wrongful acts in managing the company.
Who should consider this coverage?
Any business with a board of directors or senior officers should consider it, especially if the company has outside investors, a complex regulatory environment, or frequent employment disputes.
How do Side A, B and C differ?
Side A protects individuals when the company cannot indemnify them, Side B reimburses the company for indemnifying officers, and Side C covers the company itself when it is sued alongside individuals.
Can companies reduce the cost of D&O insurance?
Maintaining strong governance practices, clear policies, and proactive compliance programs can help lower risk and may improve pricing from insurers.