Directors and Officers liability insurance (D&O) protects past, current and future directors and officers of for-profit or nonprofit companies from damages resulting from alleged or actual wrongful acts they may have committed in their positions. The policy provides protection in the event of any actual or alleged error, misstatement, omission, misleading statement, or breach of duty. In addition, some policies extend the same coverage to employees. To further explain - it can also be thought of as management errors and omissions coverage.
When is D&O Coverage Needed?
Members of a board of directors will frequently require this type of coverage to protect their personal assets before joining a board. Investors will also usually require D&O coverage as part of the conditions of funding.
Why is D&O Coverage so Important?
Claims from stockholders, employees, and clients will be made against the company, and against the directors of the company. Since a director can be held personally responsible for acts of the company, most directors and officers will demand to be protected rather than put their personal assets at stake.
Generally investors no matter how deep their belief in your company as well and members of your board of directors will generally not be willing to risk their personal assets. They will require D&O coverage as part of their arrangement for involvement in your company.
In addition, employment practices lawsuits are the single largest area of claim activity under D&O policies. Over half of claims are employment practices related.
For more information about this key component of the risk management for your business, contact us today.