Directors & Officers Insurance

As an officer or director at your organization, you encounter a myriad of employment related exposures.  Sarbanes-Oxley regulatory mandates and increased shareholder activism mean directors are at risk for claims and elevated settlement costs. 

The legal cost to defend a director is substantial, as are the potential penalties that can be personally incurred.  Due to the personal liability risk, which is not covered under a personal insurance policy, protecting boardroom talent can be a challenge.  A directors’ and officers’ liability insurance (D&O) policy is part of a comprehensive risk financing strategy.

Unlike a commercial general liability policy that provides coverage for claims arising from property damage and bodily injury, a D&O policy specifically provides coverage for "wrongful acts,” such as an actual or alleged error, omission, misleading statement, neglect or breach of duty.  A D&O policy provides defense costs and indemnity coverage to the entity listed on the policy declarations, which may include the following: 

• Coverage for individual directors and officers
• Reimbursement to the organization for a contractual obligation to indemnify directors and officers that serve on the board
• Protection for the organization or entity itself. 

Indemnification provisions are typically included in the charter or bylaws of a corporation.  While an important risk component, small to midsize privately held companies or nonprofit organizations often don’t have the financial resources to fund the indemnity provisions, making the bylaws hollow.  A D&O policy can provide an extra blanket of security in the event of a covered loss.

The following is a list of additional forms of coverage to protect directors and officers:

• Entity coverage
• Payment priority for insured persons
• Severability of the insured as well as severability of the application
• Coverage over time, meaning the coverage responds to past, present and future directors and officers
• Pay on behalf clause
• Duty to defend clause

Additionally, most D&O polices can be endorsed to provide Employment Practices Liability (EPL) coverage and Fiduciary Liability.

• Employment practices liability protects against wrongful termination, discrimination or sexual harassment suits from current, prospective and former employees.
• Fiduciary liability provides coverage for liabilities arising out of the Employee Retirement Income Security Act (ERISA), where fiduciaries can be held personally liable for losses to a benefit plan incurred as a result of alleged errors, omissions, or breach of their fiduciary duties.

Nonprofit Directors & Officers (D&O) Liability insurance helps cover the defense costs, settlements and judgments arising out of lawsuits and wrongful act allegations brought against a nonprofit organization. Many times nonprofits may not even realize that their board members may be held personally liable for the actions of the organization. Protect your organization's mission and your board member's personal assets – you can’t afford not to.

• Familiarize yourself with your organizations mission and your board responsibilities
• Understand the organization’s risk
• Are risk management strategies in place to prevent or mitigate litigation exposure
• Ensure the organization and board have the right directors and officers’ liability insurance from a reliable carrier

Whether you’re a nonprofit, privately held or public company, both you and your business can benefit from a D&O policy. Since there is no such thing as a “standard” policy, a professional agent is invaluable when purchasing D&O coverage.