Directors and officers liability insurance, often called D&O coverage, protects the executives of a company from legal action as a result of negligence arising from their actions within the organization. In other words, if they are sued for any action they take as a director or officer, the D&O coverage will step in to assist with legal protection.
How Does D&O Insurance Work?
D&O insurance protects the current and future directors and officers of any for-profit or non-profit organization from suits arising from perceived or actual wrong-doing. In a sense, D&O insurance is similar to professional liability insurance; both types of policies protect companies against lawsuits resulting from errors or misdeeds. In the case of D&O insurance, however, the protection is meant specifically for the directors and officers rather than any other employees.
Some of the things that might be covered by D&O insurance:
- Misleading statements, whether intentional or accidental
- Errors and omissions
- Breaches of duty
- Wrongful acts
Who Needs Directors & Officers Insurance?
Any company or nonprofit organization that has a board of directors or advisers can benefit from this type of insurance. For publicly traded companies, D&O insurance is a must-have. Even smaller companies, including those that are privately owned, can still benefit from this coverage as long as they have the appropriate corporate structure.
Sole proprietorships, partnerships and some small businesses may not need D&O insurance. For these companies, other types of liability insurance will probably be sufficient. You can check with your insurer to determine what needs your business may have and ensure that you are purchasing the correct type of liability policy for your company.
How Much Does D&O Insurance Cost?
As with all liability policies, directors and officers liability premiums are affected by several factors. Depending on the size of your company and its specific risk level, your premiums may be higher or lower than those of another business. The best way to know how much your insurance will cost is to obtain multiple quotes from different insurance carriers. This should provide a reasonable sample to test the cost and coverage types available.