What is directors and officers liability insurance?
Directors and officers liability insurance protects past, present and future directors and officers of for-profit or nonprofit companies from damages resulting from alleged or actual wrongful acts they may have committed in their positions. The policy provides protection in the event of any actual or alleged error, misstatement, omission, misleading statement, or breach of duty. In addition, some policies extend the same coverage to employees.
D&O insurance is needed when a board of directors is assembled. Investors usually require that you have D&O insurance as part of the conditions for funding your company.
Why buy directors and officers liability insurance?
Claims from employees, clients and stockholders may be made against any company and against the directors and officers of a company. Since a director or officer can sometimes be held responsible for acts of the company, most directors and officers will want to be covered rather than risk their personal assets.
Investors and members of the board of directors will not risk their personal assets to serve as a corporate director or officer without directors and officers insurance coverage.
What does D&O insurance cover?
Criminal, administrative, civil, and regulatory proceedings based on actual or alleged acts, errors, omissions, misstatements, neglect, or breach of duty committed or allegedly committed by a director or officer have been covered with directors and officers liability insurance.
A directors and officers liability insurance policy covers defense expenses and financial damages or settlements. The policy does not cover wages, fines, taxes, penalties, or multiplied damages.
Coverage limits are available from $500,000 to $1,000,000 per claim and annual total limit, with a $5,000 deductible per claim.
D&O liability insurance vs. professional liability insurance or errors and omissions coverage.
D&O insurance is often confused with professional liability insurance or errors and omissions coverage. The two are not the same; professional liability/errors and omissions coverage applies to performance failures and negligence with respect to products and services, not the performance and duties of the executive team (as with directors and officers liability insurance).