Spotlight on Directors and Officers (D&O) Coverage

What is D&O insurance coverage?

Directors and Officers (D&O) liability insurance protects corporate assets as well as individuals from being sued as a result of their role as a director or officer of a business or other organization.

Does my business need D&O coverage?

It’s a common misconception that D&O claims are mostly related to large public companies. For any entity with a board of directors, including non-profits, D&O coverage is a wise way to protect against lawsuits from vendors, customers, employees or other third parties.

What does D&O insurance cover?

D&O insurance covers losses and reimbursement of defense costs should a lawsuit be brought against a director. Often the cost of legal defense is greater than the claim. Certain types of D&O insurance can be extended to criminal and regulatory investigations and trial defense costs. It typically does not cover fraud, criminal activity or internal lawsuits.

What are the most common D&O allegations?

Directors and officers are sued for a variety of reasons including:

• Misrepresentation of company assets
• Fraud
• Misuse of company funds
• Failure to comply with regulatory laws.  Some regulations are unknown or obscure, so companies don’t realize a law has been broken.
• Theft of intellectual property
• Poaching of a competitor’s customers

Is the D&O claims process complicated?

No, the process is fairly straightforward. A case begins when a director or officer is accused of failing to perform their duties. This could include employment malpractice, reporting errors, inaccurate disclosures, regulatory violations or insolvency. The claims process begins when those affected bring suit against the manager. The director being sued then informs his insurer who will cover defense costs and any financial damages should the claim be lost.

As a board member, does my Homeowner’s policy cover me personally?

Homeowner’s policies exclude business-related activities, and commercial General Liability policies exclude claims related to errors and omissions made by management.

What kind of D&O coverage does my organization need?

Your coverage limits will vary depending on the size, scale, mission and type of organization. At Oakbridge, we pride ourselves in developing customized coverage plans for almost any type of business or non-profit. Your Oakbridge insurance professional can help you analyze your entity’s needs and develop the right level of coverage to fit your budget and your operations.