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Directors And Officers Liability – What Is This For?

   |  January 1, 2015

The insurance business is full of innovation, which has led to the availability of different kinds of insurance products. One of the numerous options available is Directors and Officers Liability. But what is this coverage for and who buys it?

Directors and Officers Liability explained

Directors and officers liability (D & O) is a special offering designed to protect the directors and officers of a company against the possible fallouts from carrying out their duties. You may think of this policy as management’s own version of Errors and Omissions Insurance (E & O), but they still have their differences. While an E & O policy protects against the consequences of negligence and defective performance in regard to your products and services, a D & O policy safeguards against lawsuits resulting from management duties and performance.

Directors And Officers Liability

Why purchase a Directors and Officers Liability?

This policy is important if a business or company must ensure that its directors and officers perform their duty as expected. Lawsuits may be filed by clients, equity owners or employees against the directors and officers of any company for the manner in which they perform their duties. In the absence of a D & O policy, these executives may shy away from taking the right decisions to avoid losing their personal assets to legal actions.

Who buys Director and Officers Liability coverage?

As you might have already guessed, companies are expected to be responsible for the purchase of this insurance. It is advised that all listed public companies should consider getting this policy for their directors and officers. Private organizations and not-for-profit organizations should also consider the coverage.

What does the policy cover and exclude?

Directors and Officers Liability insurance cover legal proceedings against a director or an officer for breach of duty, misstatements, errors, omissions or neglect committed or allegedly committed by him or her. It pays for both costs of defense and financial settlements. However, you may not expect a Directors and Officers Liability policy to cover excessive damages, taxes, fines, wages, or penalties.

The success of your business depends on the ability and efficiency of those you put in charge of it. Ideally, they should not feel intimidated by lawsuits for them to give in their best. Purchasing a D & O policy is one sure way of enabling those you charge with the responsibility of managing your business to perform their duties uninhibited.

Published: April 11, 2014

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