Directors and officers liability insurance

Directors’ and officers’ liability insurance should be a priority for corporations and companies. Also known as D&O insurance, this policy protects directors and officers in a company while they perform their job of managing the company and its different departments. As a director or officer, in a company, it’s not your job to purchase a D&O insurance policy. These policies are to be purchased by a company to include its directors and officers, as the name implies.

A director or officer will often be responsible for taking decisions and managing key divisions of the company.  AS a director or officer you need to make sure that the owners of the company purchase this type of insurance to protect the company’s key employees. By doing so, you ensure that the personal assets and property of the directors and officers won’t be jeopardized in case of a claim or lawsuit against the company.  As an employer, you should make sure that you have this type of policy in place so that you can protect your most valued employees and also attract the best possible candidates to their offices.

In case you’re wondering, commercial general liability insurance is very different from directors’ and officers’ liability insurance. D&O insurance covers personnel and management mistakes while general liability insurance is designed to cover the company only from other types of claims.

People assume that D&O insurance is there to protect directors and officers from claims made from shareholders, but that’s only partly true. Yes, a D&O insurance policy will protect you from claims from outside shareholders, but even in their absence, this type of policy is still essential as most claims actually come from disgruntled employees. Other sources of claims include customers, regulators, creditors, and obviously any competition.

Directors and officers insurance provides a guarantee that there is some sort of protection in case of a lawsuit, but directors should look for indemnification too. Indemnification is an agreement that states that the company promises to cover all of the losses of a director or officer in case of a claim.

Indemnification sounds great, so why is D&O insurance needed? Well, because indemnification is limited by the company’s financial status. If the company can’t cover more than 50% of the director’s losses then he or she would have to pay the remaining 50% out of pocket, unless of course there’s a D&O policy present to take care of it. Indemnification and a D&O insurance policy are two things that many high-level directors or officer candidates look for when searching for a new job at a company.

A company’s D&O insurance policy excludes those who commit criminal or illegal acts. Directors who commit fraud or any other type of felony won’t be covered and will have to deal with the consequences of their actions on their own. An insurance company also won’t be able to cover the directors of a company if one director decides to sue another director or group of directors within the same company as this is company infighting.