It will come as no surprise to learn that the number of business-related lawsuits, as well as the cost of litigation and amount of damages awarded, has increased steadily in recent years, Directors and Officers Liability Insurance (usually referred to as simply “D&O”), originally marketed by Lloyd’s of London in the 1930’s, provides financial protection for the directors and officers of your organization in the event they are sued in conjunction with the performance of their company-related duties. D&O insurance coverage is payable to the directors and officers of a company, or to the organization itself, as reimbursement for losses or to advance defense costs when an insured suffers such a loss arising from legal action brought against directors and officers for alleged wrongful acts in their capacity within the company. The experts at Eichberg Associates, Inc. will work with you to determine the level of coverage needed to protect your directors, officers and your company.
What types of protection does this policy provide?
Criminal, civil, administrative and regulatory proceedings arising from actual or alleged acts, omissions, errors, neglect or breach of duty committed or allegedly committed by a director or officer are covered with D&O insurance. Any act of willful criminal intent by a director or officer is not covered. Usually, Employment Practices Liability, and sometimes Fiduciary Liability, can be included in D&O Liability.
What damages are covered by D&O Liability insurance?
The damages covered arise from losses incurred as a result of the protected legal actions described above and include:
- Defense expenses
- Financial settlements
- Damages awarded
- Fines, taxes, penalties and lost wages are NOT covered
Who needs D&O Liability Insurance?
Any publicly traded company with a corporate board or an advisory committee is a good candidate for a D&O policy. In addition, private companies or non-profit organizations could benefit from D&O coverage. When you assemble a board of directors, they will often insist on D&O coverage, as will your potential investors who will fund your organization.
Why purchase D&O Liability Insurance?
In this ever increasingly litigious society, your directors, officers and your company are targets for claims made by stockholders, employees and clients. Since sometimes directors and officers can be held liable for the acts of the company, they will want the protection offered by a D&O policy rather than risk their personal assets. If you do not minimize this exposure for your directors and officers, retaining and recruiting top-tier talent for these key positions in your organization can become difficult.
Employment practices suits, including discrimination and harassment, make up the single largest source of claims activity under D&O policies. In fact, approximately 50% of D&O policy claims are related to employment practices, so protection in this area is crucial.