D&O Coverage

Published in All Insurance Industry Insights on Wednesday, October 11, 2023

In today’s business climate of corporate transparency and accountability, an organization’s officers and directors face a myriad of employment-related exposures. Sarbanes-Oxley regulatory mandates and shareholder activism mean directors are more frequently at risk, translating to rising claims and escalating settlement costs.

Regardless of your company’s size, the legal cost to defend a director is substantial, as are the potential personal penalties. Due to the personal liability risk—which is not covered under a personal insurance policy—protecting boardroom talent can be a challenge. To help ensure both your officers’ and company’s well-being, a directors’ and officers’ liability insurance (D&O)policy is part of a comprehensive risk financing strategy.

D&O Fills the Coverage Gap

Unlike a commercial general liability policy that provides coverage for claims arising from property damage and bodily injury, a D&O policy specifically provides coverage for a "wrongful act,” such as an actual or alleged error, omission, misleading statement, neglect or breach of duty.

For example, a manufacturer told one of its suppliers to increase inventory because they were expecting a large increase in production. As predicted, demand for the manufacturer’s product grew, but the manufacturer increased its inventory with another vendor. The original supplier successfully sued the manufacturer, alleging they suffered damages as a result of having relied on the manufacturer’s promise.

A D&O policy provides defense costs and indemnity coverage to the entity listed on the policy declarations, which may include the following:

• Coverage for individual directors and officers
• Reimbursement to the organization for a contractual obligation to indemnify directors and officers that serve on the board
• Protection for the organization or entity itself

Indemnification provisions are typically included in the charter or bylaws of a corporation. While an important risk component, small to midsize privately held companies or nonprofit organizations often do not have the financial resources to fund the indemnity provisions, making the bylaws hollow. A D&O policy can provide an extra blanket of security in the event of a covered loss.

We’re Here to Help

Whether you’re a nonprofit, privately held or a public company, it is likely that your business can benefit from a D&O policy. We understand your organization and can knowledgeably help design policy language to meet your needs. Call us today to learn more about the appropriate protection for your company against potential directors’ and officers’ liability.