Should You Consider Directors and Officers Liability Coverage?


Directors and officers liability insurance can protect your company if sued as a result of a wrongful act or a decision by an executive or board member. Organizations face risks every day and claims against upper management or board members have become increasingly more common.

In the event of legal action or settlement, a director or board member can actually be held personally liable. So today, board members and executives expect the companies they serve to carry Directors and Officers liability insurance coverage.

How Directors and Officers Liability Insurance Can Help

Directors and Officers liability insurance - which is often referred to as D&O coverage - is designed to help cover the award and/or settlement costs due to lawsuits that are brought against a company's executives, board of directors and/or the organization itself.

What is covered by Directors and Officers Liability Insurance?

Directors and Officers liability insurance is a type of liability coverage that can protect directors and/or officers of a company for claims that are made against them while serving on a board of directors or as an executive.

Some of the potential exposures may include:

  • Regulatory actions
  • Allegations of misrepresentation
  • Securities litigation
  • Breaches of fiduciary duties

In some ways, a Directors and Officers liability policy can be considered similar to errors and omissions insurance for a company's management personnel. This is because the policy can cover claims that result from their decisions that could, in turn, have adverse financial consequences.

This coverage can be payable to either the directors or officers themselves, or alternatively, to the company or entity as reimbursement for losses, or as the advancement of the cost of legal defense in the event of a lawsuit.

A Directors and Officers liability policy may even provide coverage for the cost of defense that arises out of a criminal or regulatory investigation, as well as for the cost of trial. These plans, however, will not typically cover intentional illegal acts.

Who is eligible for Directors and Officers Liability Insurance Coverage?

A Directors and Officers liability policy can be written to cover the directors and/or officers of many different types of companies or entities. These can include the following:

  • For-profit businesses
  • Not-for-profit organizations
  • Privately held companies
  • Educational institutions

Why Consider the Purchase of Directors and Officers Liability Insurance?

Although your business may be covered for a wide variety of other potential risks, the financial threat of a lawsuit that is brought against the company's officers or board of directors is often overlooked. This situation, however, can end up to be quite costly - and today, these types of lawsuits are becoming more and more common.

While officers and directors may have good intentions, these individuals could still end up mixing business and personal assets, failing to disclose a conflict of interest, or even breaching their legal duty to the business. Having a Directors and Officers liability insurance policy can help with the financial end of these situations - and can in turn, save the company and/or the individual a significant sum.

What to Look for When Purchasing a Directors and Officers Liability Policy

It is important to note that a Directors and Officers liability policy can have what is referred to as shrinking limits provisions. This means that the cost of defense - which can be a significant part of a claim - may reduce a policy's limits.

In addition, most of these policies are written on a claims-made basis which may limit the coverage. There may be no explicit duty to defend the insured individuals when the coverage is written on a for-profit business.

With that in mind, having a good understanding of the coverage needs versus what a policy will actually provide coverage for is essential. Having an advisor who can walk you through the process of obtaining the right coverage for your business is also key to matching D&O coverage with potential needs.  

Why Choose VANTREO as Your Directors and Officers Liability Insurance Advisor?

When you choose VANTREO as your directors and officers liability insurance broker, you will have a team of experts to guide you who are focused on you and your company's specific coverage needs. So, Contact us at (800) 967-6543 for more details on how to move forward or complete our contact form to request a complimentary consultation.

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