Directors and Officers
You make the decisions for the benefit of your company. What happens if those decisions has unintended consequences such as a lawsuit?
What is Directors and Officers Liability Insurance?
A Directors and Officers (D&O) is a liability insurance that protects leadership from any costs and damages resulting directly from their decisions. The policy can reimburse settlements and defense costs that result from covered claims. Claims are payable to either the organization or the directors and and officers of the company.
What does Directors and Officers Liability cover?
The most common lawsuits concern mismanagement of funds, misrepresentation allegations, breach of fiduciary duties, failure to comply with workplace laws, securities litigation, bankruptcy and a lack of corporate governance. It is important to understand that leadership can be sued by various parties – including investors, customers, vendors and employees.
How important is Directors and Officers Liability Insurance?
A D&O policy allows executives to perform their duties with confidence and without having any fears of personal financial loss. It can also minimize the risk of a company going under. In the world of business today, time is of the essence and significant decisions can be made with limited amount of time and information, leading to a higher propensity in making mistakes. Ultimately, without D&O, employees’ personal assets are at risk in the event of a lawsuit.
Who needs Directors and Officers Liability Insurance?
While there is no specific type of business that must have a D&O policy, businesses concern the following aspects should take high consideration in taking out a D&O policy:
- Any business that has large sums of money owed to creditors are susceptible to liquidation. When there is an inability to pay creditors, the blame is often pointed towards the company’s directors and officers.
- Any company who intends to hire a top executive can use this policy as an attraction. Some executives will not even consider joining a company without this coverage.
- An organization with a board of directors, whether it is private, public or non-profits, will find a D&O policy beneficial.
- If you are looking to secure investors from venture capital firms.
How much does a Directors and Officers Liability Insurance policy cost?
The cost of a D&O policy depends on multiple factors:
- Legal History
- Assets
- Debt
- Revenue
- Industry
- Coverage
Typically, a business that has been established for longer, with an experienced group of leaders can expect to pay less due to lower risks of litigation. Furthermore, the more assets, income and shareholders results in higher rates. Insurers will also look at financial stability, as low risk of bankruptcy can lower the cost. Lastly, the higher the coverage, the more it costs.
