D&O Insurance Fundamentals
Understanding D&O insurance fundamentals is important for directors and officers of public and private companies. A lack of knowledge of D&O insurance fundamentals on the part of the existing leadership team and or potential candidates considering joining an organization can result in highly qualified people not pursuing or accepting an executive position at your company or on your board, as they may not want to put their personal assets at risk in the event of a lawsuit or insolvency and don’t understand “personal asset protection” that directors and officers insurance provides.
D&O Insurance Fundamentals – How Much Does D&O Insurance Cost?
A variety of factors determine the price of a company’s directors and officers (D&O) insurance. Some low-risk companies pay less than $1,000 per year for $1,000,000 of coverage; while others pay a lot more, but they understand it’s a lot less than the expenses they’d incur in a lawsuit. Recognizing the cost drivers of D&O insurance—a company’s exposures, legislation, financial stability and trends in D&O lawsuits—can help you decide what coverage your company needs to mitigate its unique exposures.
D&O Insurance Fundamentals – Types of Lawsuits
Even after a thorough assessment of a company’s risks, directors and officers insurance continues to be a high-severity product, as carriers are often hit unexpectedly with catastrophic claims. In addition, as the litigation process grows lengthier and multiple lawsuits erupt from a single transaction, a company can quickly exhaust its primary layer of D&O insurance coverage.
Even if the director or officer is not found liable. Some of types of lawsuits may affect them, these include:
- Breach of fiduciary duty lawsuits
- Employment-related lawsuits
- Mergers and acquisitions (M&A) and “merger objection” lawsuits
- Securities class-action lawsuits
- Shareholder derivative suits
D&O Insurance Fundamentals – Know Your Directors & Officers Insurance Policy
Be aware of exclusions, for some insurance carriers, employment practices liability (EPL) insurance and fiduciary liability insurance are policies that are purchased separately from primary D&O insurance. Don’t assume they are automatically included in your D&O policy.
An ALIGNED Advocate can provide expert guidance about D&O insurance fundamentals as well as risk management best practices for your organization. Talk to one of our advocates today about how we can help you secure the best products, services and insurance solutions for your business.
