D&O insurance policies offer liability coverage for directors and officers against damages resulting from negligent or wrongful acts in the course of their duties. It also covers the corporation for expenses incurred in defending lawsuits arising from alleged wrongful acts of officers or directors. A key feature of a D&O policy is that it provides defense costs for a claim which in many instances can be more than the actual claim settlement.
D&O policies cover the personal liability of company directors and officers as individuals (Side A), but also the reimbursement of the insured company in case it has paid the claim of a third party on behalf of its directors and officers in order to protect them (Side B).
Publicly traded companies can also obtain cover for claims against the company itself for a wrongful act in connection with the trading of its securities (Side C).
The following entities should consider D&O insurance:
- Not-for-profit entities
- Publicly traded corporations
- Closely-held private companies with Advisory Boards
- Organizations contemplating an IPO
- Any organization in any industry that has Directors, Advisors or other outside non-employees involved in decision-making to protect them from personal liability.