D&O or Directors & Officers is Liability insurance that covers defense and damages (settlements and awards) costs as a result of wrongful act allegations and lawsuits brought against an entity’s board of directors and/or officers. This is increasingly more and more common with directors and officers being held personally liable. In order to lower your turn over rate with your qualified executives and board members this coverage is crucial.
What types of coverages are available?
D&O policies apply to three insuring clauses:
- Side-A: non-indemnified
- Side-B: indemnified
- Side-C: entity securities coverage
Side-A covers individual directors and officers when not indemnified by the entity as a result of state law or financial capability. Some exclusions apply; if an entity refuses to pay the legal defense/loss of a director or officer, or if a bankruptcy court issues an order preventing such indemnification
Side-B provides coverage for the corporation (organizations) when it indemnifies the directors and officers (corporate reimbursement)
Side-C provides coverage to the corporation (organizations) itself for securities claims brought against it
Alternatively, consider extensive coverage for individual directors and officers under a Broad Form Side-A “Difference in Conditions” (DIC) policy to provide excess non-indemnified coverage, but also to fill the gaps in coverage, it springs into action where your traditional policy does not, protecting individual directors and officers in the face of bankruptcy courts deeming the D&O policy part of the bankruptcy estate and otherwise fully protects personal assets of individual directors and officers.
How important is D&O Insurance?
Although there are misconceptions that D&O claims are only meant for public companies, surveys show that public, private, and non-profit companies all face D&O litigation risks. The average total cost of D&O lawsuits to companies can be hundreds of thousands of dollars, considering judgments, settlements, fines and legal fees. Without sufficient coverage, this could be financially devastating to your practice, as well as your directors and officers.
Entities with corporate boards or advisory committees, including non-profit organizations should consider investing in D&O insurance. To be personally sued over their management of company affairs your company does not need to have revenues in the tens of millions of dollars. In all actuality smaller businesses with fewer assets may need the protection just as much as large for the sake of your directors and officers.
Would you like more information on why D&O insurance is so important? Contact us at email@example.com or call us directly at (805) 499-7300.