Directors and Officers Liability Insurance
INSURANCE • READ TIME: 2 MIN
Liability insurance for directors and officers is not just for large public companies; it can be an equally valuable risk management tool for smaller businesses.
Directors and Officers (D&O) liability insurance helps protect directors and officers of public and private for-profit businesses of all sizes, as well as non-profit organizations, and educational institutions.
A D&O insurance policy provides financial protection for managers against claims arising from actual or alleged “wrongful acts” of directors and officers acting within the scope of their managerial duties. A D&O policy is designed to pay for defense costs and financial losses. It may also cover the costs associated with administrative and criminal proceedings and with investigations by regulators or criminal prosecutors.
D&O insurance is not designed to cover certain risks, such as those attached to fraud, intentionally bad acts, illegal remuneration, property damage and bodily harm, and pre-existing legal actions.
Primary D&O Risks
The risks confronting directors and officers are manifold, and may include:
- Employment practices and other human-resource-related issues
- Shareholder actions
- Reporting errors
- Inaccurate and inadequate disclosure
- Failure to comply with laws or regulations
- Decisions that exceed the authority of a company officer
D&O insurance is not just about protecting directors and officers against the financial risks that may arise from the decisions they make. A key benefit of having such protection is that it provides company officers and members of a company board with the room to make decisions with the knowledge that the risks attached are manageable and transparent.