Directors and Officers Liability Insurance
Unlike a commercial general liability insurance (CGL) policy that provides coverage for claims arising from property damage and bodily injury, a Directors and Officers Liability Insurance policy specifically provides coverage for a “wrongful act,” such as an actual or alleged error, omission, misleading statement, neglect or breach of duty.
Q. Who Is Covered By Directors and Officers Liability Insurance?
A Directors and Officers Liability Insurance policy provides defence costs and indemnity coverage for some or all of the following:
- Coverage for individual directors and officers
- Reimbursement to the business for a contractual obligation to indemnity directors and officers who serve on the board
- Protection for the organization or entity
Indemnification provisions are typically included in the bylaws of the organization. While these are an important risk component, small to midsize privately held companies often do not have the financial resources to fund the indemnity provisions, making the bylaws hollow. A Directors and Officers Liability Insurance policy can provide an extra blanket of security in the event of a covered loss.
Directors and Officers Liability Insurance Coverage
A “fraud” exclusion is typically included in a Directors and Officers Liability Insurance policy, which eliminates coverage for losses due to dishonest or fraudulent acts or omissions, or wilful violations of any statute, rule or law. However, within most Directors and Officers Liability Insurance policies there are many additional clauses that provide important coverage to adequately protect directors and officers, including:
- Payment priority for insured persons
- Severability of the insured as well as severability of the application
- Coverage for past, present, and future directors and officers
- Pay on behalf clause
In addition, some Directors and Officers Liability Insurance policies can be endorsed to provide employment practices liability (EPL) coverage and/or fiduciary liability protection.
Protect Your MVPs with Directors and Officers Liability Insurance
Regardless of your company’s size, the legal cost to defend a director can be substantial, as can be the potential penalties that can be personally incurred. Due to the personal liability risk (not covered under a personal insurance policy), protecting the board with a well structured Directors and Officers Liability Insurance policy is critical.
To learn more about why a directors and officers liability insurance (D&O) policy should be part of a comprehensive risk financing strategy contact an ALIGNED Insurance Advocate or connect with us at www.alignedinsurance.com