Directors and Officers Insurance is personal liability insurance that provides both general and financial protection to cover the directors, senior executives, and officers of your company in the event they are sued in conjunction with the performance of their duties as they relate to the company. D&O insurance is usually paid by the firm; it reimburses the costs resulting from law suits and judgments arising from poor management decisions, employee dismissals and shareholders grievances. Directors and Officers liability can also include employment practices liability and sometimes fiduciary liability; harassment and discrimination suits are also covered.
Employment practices suits constitute the single largest area of claim activity under D&O policies. Over 50% of D&O claims are employment practices related. Please note criminal offenses are not covered under this insurance. Anytime a board of directors is assembled, Directors and Officers liability insurance is a practical idea. Investors, especially Venture Capitalists, will usually require that you show evidence of D&O Liability Insurance as part of the conditions for funding your company.
At any point in a director or executive’s career, it is always a possibility for them to be held personally responsible for acts of the company. By having a D&O policy in place your directors and officers are protected rather than having personal assets in jeopardy. Investors and board of directors’ members will not be willing to risk their personal assets to serve as a corporate director or officer, no matter what their level of commitment is or how heartfelt their belief is in your company.
Directors and Officers Liability Insurance is regularly confused with Errors & Omissions Liability. E&O Liability Insurance is focused more on performance failures and negligence with attention directed to your products and services, whereas D&O Insurance is directed towards the performance and duties of personnel, specifically management and any position above. It is a good idea to carry both policies.