Directors and officers liability insurance at its essence protects the assets of company directors and officers, and their spouses, in the event they are personally sued for actual or alleged wrongful acts they make while managing a company. They can be sued by employees, investors, vendors, competitors or customers.
Often when a company is sued, the plaintiffs will name individual officers in lawsuits, which if lost, can result in judgments against a company as well as those officers, putting their personal assets on the line. In those cases, D&O insurance steps in to cover a number of costs, including:
- Legal costs
- Judgments, and
D&O insurance would cover a number of legal actions, including:
- Breach of fiduciary duty resulting in financial losses
- Misrepresentation of company assets
- Misuse of company funds
- Failure to comply with workplace laws
- Theft of intellectual property
- Lack of corporate governance.
While D&O insurance is usually purchased by publicly traded companies, any company that has business relationships with customers and third party suppliers is open to a lawsuit.