Directors & Officers Insurance
What is Directors and Officers insurance?
Directors and officers insurance is how business organizations demonstrate to their executives that they will not have to personally contribute to any losses the business faces as a result of any claims emerging from the actions and decisions they undertake in their official capacity while serving the organization.

When you become a director or high-level executive of an organization, you are exposed to a number of risks not directly included in your employment contract. The decisions you make in this role with extensive responsibility can be flawed and might result in circumstances that enable a third party to sue your employer.

With D&O insurance, businesses purchase this liability cover to assure their executives they will not have to compensate the claims made against the business as a result of their decisions.
Who needs a Directors and Officers insurance policy?
Any organization that has a hierarchy of managers should get a comprehensive directors and officers insurance policy. The bigger the organization and the number of executives it has, the more significant this decision becomes.

That is not to say any small organization with one or a few executives will not find this kind of insurance useful. The fact is mistakes in decisions can happen on any level, and you can expect customers or third parties to run to the court every time you make one.

In this way, whether you have a small family business to manage or a large corporation, you should get proper liability cover for your directors and executives.
Directors and Officers insurance coverage
Your directors and officers insurance comes with liability cover and financial protection for your executives. The policy provides wrongful acts liability coverage to your officers for losses due to legal actions linked to their decisions - valid or frivolous.

Businesses do not purchase directors and officers insurance coverage only to reassure their executives but also because it provides more than coverage for personal liability of the executives with regard to their decisions and the resulting claims. D&O insurance also provides indemnification and reimbursement of any monies the organization pays to settle any of those claims.
What does Directors and Officers insurance cover?
Many situations in a typical business organization can lead to issues that make purchasing directors and officers insurance coverage a prudent investment today. With evolving business practices, the face of most managerial insurance risks is also changing. For example, as your organization grows bigger - which necessitates increased governance, it increases your managers' D&O exposure.

Therefore, the significance - and benefits - of getting thorough directors and officers insurance is also increasing with time. If your business still does not have proper liability and indemnification cover against your managers' mistaken decisions, it should be a priority.
Typical areas of Directors and Officers insurance coverage
We have already discussed the two key covers your business gets in a directors and officers insurance policy:
  • Your executives' personal liability cover for claims arising against your business due to their decisions
  • Your indemnification cover for any damages your business pays in the managers' stead for settled claims
Typically, your policy will provide you coverage for the business' former, current, and future directors and officers - and also those of any subsidiaries you have. Of course, this coverage is valid only during the period of your policy's effect, although that may change if your policy terms include an agreed upon extended period for reporting even after the policy has been terminated.

Your directors and officers insurance coverage will not typically include cover for intentional non-compliance of business rules and regulations. This means if the guilty manager deliberately sabotages the situation, and this intent is proven with evidence, your insurance carrier will not pay for any damages your business has to suffer as a result.

In other words, fraud and criminal actions are not covered in directors and officers insurance. This is particularly true for situations where non-compliance led to illegitimate remuneration or benefits to one or more directors or officers.

When it comes to the question of getting D&O insurance coverage, an important thing to remember is what happens if you do not have this insurance and your business faces a claim. In such cases, the organization holds the managers involved responsible, who have to personally pay for the legal damages, threatening their financial security and career.

This is something you surely do not want to happen.

To get more information about what your insurance policies should look like, contact one of our agents right now.