All about Directors and officers (D&O) liability insurance: The what, who and why

Director and officer

If you are the Director or an officer of a company then you have a high-risk profession because if held liable for your own or other Directors’ decisions, you could face a huge loss through litigation from competitors, shareholders, creditors, or various other regulatory bodies.

So, in order to safeguard your company and its major decision-makers from the threat of being held legally responsible or sued for any sort of negligence, malpractice, or accident, you can rightly use this type of Liability insurance i.e. a Directors and officers (D&O) liability insurance.

But wait, what exactly is this liability insurance? Here’s an overview of Directors and officers (D&O) liability insurance.

What is D&O liability insurance?

Directors and officers (D&O) liability insurance protect the personal assets of business directors, officers, as well as their spouses when senior members of a company are held legally responsible by their employees, competitors, customers, vendors, investors, or other parties for actual or alleged misconduct in managing the business. D&O liability insurance comes to the rescue and offers them extensive coverage.

Who are the persons covered under D&O liability insurance?

The Directors and officers liability insurance can cover the following individuals:

  • The officers and directors employed by the company
  • The risk manager who is also the employee of the company
  • Officers and directors of the subsidiary companies
  • An employee of the organization who is working in the supervisory or managerial department of the organization
  • Independent directors and officers
  • The secretaries of the organization
  • Non-executive directors
  • The employee (excluding the officer or director) of the company who is acting as a lawyer on behalf of the organization.

Simply put, the Directors and Officers insurance applies to all those people who hold supervisory as well as managerial positions in the company. This includes employees, Board of Directors, or any other person who is a part of the company’s management.

Why there is a need for Directors and officers (D&O) liability insurance?

There are a plethora of good reasons on why you definitely need D&O liability insurance. Discussed below are some of the significant ones.

  • D&O liability insurance helps meet various legal and regulatory requirements.
  • It helps in the case of accounting misconduct and financial fraud.
  • It is very much required when cases related to sexual harassment are made against an officer or the director of the company.
  • It covers all the legal costs in case a Director or Officer covered in the policy issued.
  • It is needed when the major assets of the company are mistreated or when the company’s funds are misused.

Today, there are many companies that believe they don’t really need D&O liability insurance. But when one considers all the aforementioned reasons, one realizes that there is actually not a single reason for a company not to opt for D&O insurance. Always remember that not purchasing this insurance coverage might be risky as only a single D&O claim can ruin all the personal assets of a company and the organization may incur a great financial loss.

What are the various factors that determine the premium you pay for a D&O cover?

  • The financial condition of the company
  • Business activities / Specific industry
  • Quality of management/experience of management
  • Diversity of business activities
  • Length of time in business
  • Mergers and acquisitions
  • Organizational structure
  • International operating exposures
  • Claims history

For more information about D&O insurance, talk to a consultant at New Age Insurance Brokers or e-mail us at info@newageib.com to help you through the process of negotiating and purchasing the right coverage for your business needs.

Leave a Reply

Your email address will not be published. Required fields are marked *