What is Directors and Officers Insurance?

What is Directors and Officers Insurance?

Oftentimes, business owners assume directors and officers insurance is only for large corporations, and not needed for small to midsize business owners. This simply isn’t true.

D&O liability insurance protects corporate directors and officers if they or the company are sued over their management of company affairs. Regardless of their size, the majority of businesses have officers who can be targeted by litigants.

According to the Insurance Information Institute, “directors and officer liability insurance protects the top executives of corporations or nonprofit organizations if there is a lawsuit claiming they managed the business or organization without proper regard for the rights of others.”  This particular type of insurance protects directors and officers from legal fees and other costs and depending on the coverage can sometimes protect the company as well.

It is particularly important if you are trying to attract funds from outside investors- some financiers require D&O policies before funding your business, as a way to protect their investment. Sometimes when hiring a new director they will require it as a condition of employment because they don’t want to put their personal assets at risk. Liabilities could include omissions, errors, misstatements, misleading statements, neglect or breach of duty. Misrepresentation of company assets, misuse of funds, or failure to comply with workplace laws are some other examples. Even if there is no wrongdoing, D&O insurance can cover legal costs in the event of a lawsuit.

According to Inc., survey by a national insurer found that one in eight survey participants, approximately 12 percent, had experienced a D&O lawsuit within the past five years. In addition, the legal costs averaged about $225,682, with losses approaching $5 million.

Directors and Officers liability company policies are not all the same. Each company policy has different wording that can adjust the scope of coverage presented to you. While some carriers offer lower premiums; their particular policy wording can narrow down the scope of coverage to you as a board member, director or officer. This can leave you with a false sense of security.

Your business faces many risks. But when those risks include legal claims and litigation, it is your directors and officers who often suffer the greatest exposure. Newman Crane & Associates offers Directors and Officers (D&O) insurance, which provides protection against the costs of legal defense and indemnity coverage for your business, your directors, officers, and employees in suits alleging internal mismanagement. Contact us today for more information.