“I hope you find this topic on Directors’ and Officers’ Insurance enlightening. You will learn in this article the importance of having coverage and a checklist to know what specific coverage you should be discussing with your Insurance Agent. For additional information, please feel free to contact me and we can discuss your specific needs.”
Jennifer Moffitt, CIC
Directors’ and Officers’ Insurance
Directors’ and Officers’ Insurance is commonly referred to as “D&O Insurance.” The goal of D&O Insurance is to protect directors and officers of a corporation from liability in the event of a claim or lawsuit against them asserting wrongdoing in connection with the company’s business.
Once you start to rely on others — e.g., a Board of Directors and professional managers — to run your business, D&O Insurance becomes desirable. D&O Insurance basically protects against liability claims from people who allege that in conducting the business of the corporation, the directors and officers breached a legal duty to them. Essentially, D&O Insurance can provide protection for claims that result from errors in judgment. Directors have potential liability for not adequately performing their obligations or failing to exercise reasonable business judgment.
D&O Insurance has become very expensive, and insurers have cut back on the scope of its coverage. It’s very important to get a good insurance broker for this type of insurance to assist you in getting the best price and the most coverage for your directors and officers.
Checklist of Issues to Review for Directors’ and Officers’ Insurance
Following is a checklist of key issues for a business to review in analyzing the terms and conditions of a D&O Insurance policy:
- Is the coverage’s dollar amount sufficient?
- Is the insurer financially strong?
- Are the premium payments competitive?
- Is the deductible too large?
- Does the policy cover all directors and officers, or do they have to be specifically named?
- Does the policy also cover the corporate entity?
- Are legal fees covered?
- Does the insurer promise to advance the costs of legal fees in the event of a claim, or merely reimburse for out-of-pocket expenses?
- When must claims be made?