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:
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.
You need Directors and Officers Liability insurance when you assemble a board of directors. They will frequently make the requirement.
Investors, especially Venture Capitalists, will also usually require that you show evidence of Directors & Officers Liability insurance as part of the conditions of funding your company.
Also having employees opens management up to employment practices lawsuits – which usually can be covered under D & O insurance.
First, you need Directors & Officers Insurance because claims from stockholders, employees, and clients will be made against the company, AND against the directors of the company. Since a director can be held personally responsible for acts of the company, most directors and officers will demand to be protected rather than put their personal assets at stake.
Secondly, you need Directors and Officers Insurance because investors and members of your board of directors will not be willing to risk their personal assets to serve as a corporate director or officer, no matter how heartfelt their belief in your company.
Lastly, employment practices suits constitute the single largest area of claim activity under D&O policies. Over 50% of D&O claims are employment practices.
D&O insurance would cover a number of legal actions, including:
The amount you pay for Directors & Officers Insurance can vary wildly among insurance brokers.
It is critical that these policies are written correctly. A licensed insurance expert is waiting to help you if you please call (866) 211-2123 or leave a message below.