Directors & Officers liability insurance (D&O) provides financial protection for past, present and future directors and officers from lawsuits (and some regulatory actions) undertaken by shareholders, regulators, state investigators, or others alleging wrongdoing on the part of the board.
In most states, a business can indemnify their directors & officers to an extent. For example, a company may offer – as part of the director’s agreement – to indemnify the director if they are sued. The company may offer to pay legal fees and costs and any judgment.
D&O coverage acknowledges the indemnification potential in the policy form:
- Side A Coverage – protects directors and officers from personal financial liability when the company cannot indemnify the director or officer. This can happen during bankruptcy or dissolution.
- Side B Coverage – protects the company when the company indemnifies the directors and officers. For example, when shareholders file suit against the directors.
A third coverage clause – Side C – addresses coverage for the business entity when both the entity and individual officers and directors are named.
Because of our increasingly litigious society, members of a board of directors will frequently require this coverage to protect their personal assets before joining a board. Investors may also require D&O coverage as part of the conditions of funding.
Because the policy is written with an aggregate limit and applies to past and present officers, serious review and consideration needs to be done to determine an appropriate limit.
We specialize in helping businesses with their insurance protection, including their Directors & Officers risk. For more information about this key component of the risk management for your business, contact us today.