Outside Directors Liability Insurance Coverage Explained
Outside directors liability coverage is provided by directors and officers (D&O) liability policies for service on boards of directors outside the insured firm. Typically, such coverage only extends an automatic basis to service on the boards of nonprofit, rather than for-profit companies. However, coverage for outside for-profit board positions, particularly if they are private companies, can often be underwritten and added by endorsement. Outside directors liability coverage is found within the majority of corporate directors & officers liability policies and is written on either a double excess or a triple excess basis. That said outside directors’ liability insurance coverage can also be purchased on a standalone basis which is commonly done, by accounting firms, law firms and various other large corporations.
Double & Triple Excess Coverage Explained
A provision within directors and officers (D&O) liability policies to cover an insured director’s or officer’s work in conjunction with an outside firm, usually a nonprofit organization. When outside directors liability coverage is written on a double excess basis, the policy will be required to pay claims only after: (1) the outside organization’s D&O insurer pays the claim and (2) the outside firm is financially unable to reimburse the director or officer for the claim. When outside directors liability coverage is written on a triple excess basis, the policy will be required to pay claims only after: (1) the outside organization’s D&O insurer pays the claim, (2) the outside organization is financially unable to reimburse the director or officer for the claim, and (3) the insured organization is unable to reimburse the director or officer for the claim.
Do We Want Outside Directors Liability Coverage?
The inclusion of outside directors liability is typically considered an enhancement & benefit as it broadens coverage. However, the typical directors and officers (D&O) policy provide a limited amount of coverage for judgements, settlements and defence costs. When outside directors’ liability coverage is added it has the potential to use up the limited amount of coverage available under the policy. This would mean less coverage for the organization that it was originally intended to protect and that purchased it. As such boards may want to consider whether or not they want blanket outside directors’ liability coverage included in their policy at all.
To learn more about outside directors liability coverage and or board insurance in general speak with an ALIGNED Insurance broker
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