Large, multinational corporations need Directors and Officers (D&O) insurance to protect their board members from lawsuits, but what about smaller companies with fewer employees and less revenue?
Since every decision a Director or Officer makes leaves them exposed to litigation from creditors, vendors, customers, competitors, regulators, employees and shareholders, the answer is yes.
Four quick facts about D&O insurance
1. What is a D&O policy?
Directors & Officers Liability provides financial protection for the directors and officers of a company in the event of a lawsuit against them in conjunction with the performance of their duties as they relate to the company. It also offers balance sheet protection and may include employment practices liability and pension fiduciary as well.
2. Why get a D&O policy?
Claims from stockholders, employees, and clients can be made against the company, and its directors. Since directors and officers can be held liable for wrongful acts in the discharge of their responsibilities as directors and officers of the company, most of them will want to be protected and avoid putting personal assets at stake.
3. Why not just protect directors and officers with company resources?
While larger companies generally do this, smaller ones are usually financially unable or unwilling.
4. What is typically excluded under a D&O policy?
Standard exclusions are:
- Fraud
- Personal profiting
- Accounting of profits
- Bodily injury
- Property damage
- Pollution
- Pending and prior litigation
- And any other illegal compensation exclusions
Many of these are areas covered under another type of insurance, like a Fiduciary or General Liability policy.
Protect your directors and officers
Without D&O insurance, directors and officers would have to pay defence and settlement costs out of pocket, which is why many of them require it before agreeing to sit on a board. So talk to your insurance partner about Directors and Officers insurance and make sure your directors and officers are covered.
