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Inside Directors: Are They Covered By Board Insurance?

inside directors

Inside Directors Def:

Members of a corporate board of directors who are also employees of the corporation. Usually, a corporation’s chief executive officer (CEO), chief operating officer (COO), and chief financial officer (CFO) are members of the corporation’s board and are therefore considered inside directors because they are also employees. In contrast to inside directors are persons known as “outside directors,” who are not employed by the corporation. See also Outside directors.

Q: Are Inside Directors Covered By Board Insurance?

Inside directors are covered by board insurance which is also know as directors & officers insurance which is a type of liability insurance covering directors and officers for claims made against them while serving on a board of directors and/or as an officer. Directors and officers insurance can be written to cover the directors and officers of publicly traded companies, privately held firms, not-for-profit organizations, and educational institutions. In effect, the policies function as “management errors and omissions liability insurance,” covering claims resulting from managerial decisions that have adverse financial consequences.

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.

Even after a thorough assessment of a company’s risks, Directors & Officer 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

To learn more about Directors and Officers (D&O) insurance coverage for inside and outside directors speak to an ALIGNED Insurance Advocate or connect with us at www.alignedinsuranceinc.com

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