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  • Writer's pictureRolland & Associates

What to Know About Directors and Officers Liability Insurance

Running a company involves many risks, including legal challenges. While the company itself is often sued, the directors and officers may sometimes face personal lawsuits for actions they take in their professional capacities. This is where directors and officers liability insurance comes in. 



What is directors and officers liability insurance?

Employees, customers, or shareholders can file legal actions against directors or officers of a business or non-profit for wrongful acts (actual or alleged) when managing the organization. When this happens, directors and officers (D&O) liability insurance can step in to protect these executives from personal losses.


Organizations also spend a lot of money hiring lawyers to defend their executives and the company. D&O liability insurance reimburses the organization for legal fees as well as other associated costs incurred during the lawsuit. 


Who and what does D&O liability insurance cover?

(D&O) liability insurance provides financial protection for the personal liability of directors and officers of your company. Coverage depends on the type of policy, limits, and exclusions, but it generally covers: 


  • Legal defense costs, such as attorney fees and court fees. 

  • Settlement and judgements.

  • Personal assets of the directors and officers.

  • The company itself.


However, D&O liability insurance does not cover fraudulent acts, criminal activities, and willful negligence. Lawsuits between managers of the same company are also not covered.


Do I need directors and officers liability insurance? 

While it is not for every business, any public or private company with a corporate board would be smart to have D&O liability insurance. That's because it protects the company's executives from financial harm, as they won't have to pay out-of-pocket in a lawsuit. Companies can also get reimbursement for the legal fees and settlement costs that arise from the litigation.  


If your company is looking to recruit top talents, D&O liability insurance is also for you. Many senior executives will not work with a company without D&O liability insurance to protect them in a lawsuit. 


Does my small business need D&O liability insurance?

It is easy to think that only large public companies are at risk of lawsuits from shareholders. This assumption is incorrect and can ruin your small business.


Small, private companies, along with their leadership, can face lawsuits from customers, vendors, employees, and competitors. In fact, such lawsuits can hit small companies harder as they lack the financial resilience of giant corporations.

 

How much does directors and officers liability insurance cost?

How much you pay for D&O insurance depends on several variables, such as your company size, nature of business, financial position, and age. Other factors include claims history and the number of officers and directors being insured. 


Generally, companies that have been in operation longer pay less for  D&O insurance. Companies with more assets and income and a low risk of bankruptcy also pay less. 


Be proactive. Protect your executives and company from D&O lawsuits 

Whether you are a small company or a large corporation with deep financial muscle, D&O lawsuits can harm your reputation and finances. 


D&O insurance ensures your leadership focuses on what they do best without fear of personal liability. Request a quote today, and we'll determine your liability coverage gaps and recommend the appropriate D&O coverage. 

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