Directors and Officers Liability

Directors and Officers Liability Insurance, commonly called D&O, allows companies to indemnify their executives against covered claims and will then reimburse the company. The policy also defends the entire corporation in addition to its leadership if the company as an entity is named in a lawsuit.

Many insurers will extend coverage beyond the board of directors to cover other employees and volunteers as well.

A D&O policy contains different elements referred to as "Sides," and there are three of them:

  • Side A is protection for a company's directors and officers when the company cannot indemnify them.
  • Side B reimburses the corporation if it IS able to indemnify these individuals, after having done so.
  • Side C prevents coverage allocation disputes between the directors, officers, and the organization when
    all are named as co-defendants in a securities lawsuit. Side C is also called "entity coverage."

There are many types of claims that tend to target the leaders of companies for liability and responsibility. A corporation's leader can be held responsible for a company's failure to comply with regulations or to provide a safe workplace. Mismanagement and other such issues can cause corporate leaders to be exposed to liability as well. Lack of a good D&O policy can make it difficult to attract and retain top business management talent.

Your Mountcastle agent can help you identify how much D&O insurance coverage your company needs.

Directors and Officers Liability Insurance FAQs

  • allegations of breach of fiduciary duty
  • unfair trade practices
  • securities violations in connection with private placements
  • mismanagement of shareholder voting procedures
  • misrepresentation
  • failure to comply with laws and regulations
  • general claims related to one's actions or decisions (as well as failure to act or decide) in that person's capacity as leader of the company

While fraud is not covered by insurance, your D&O policy can pay to defend you against the fraud allegations until it's proven untrue. If the claim is unfounded and there is no fraud, your D&O policy will pay to get that part of the lawsuit taken care of.

D&O insurance can be expanded to offer additional limits for this sort of scenario to protect executives. This can be very impactful due to the fact that companies experiencing financial duress are a lot more likely to be named in a D&O suit. It can become a bad cycle. But, with your expanded D&O coverage, even if your policy has been used up, there will be a safety net to help those who are still the target of a suit but can't be protected by your company.