In a typical employment scenario, a worker is no longer covered by any insurance policies provided by the employer once they leave the company. However, such is not the case with Directors & Officers. Due to the potential impact of a board member or other senior position’s decisions, D&O insurance covers former directors.
This is critical for your clients to know when you offer this insurance policy, as they could lose a lot of money if a past director’s questionable decisions or activities damage the organization. Here are more details for brokers and agents regarding this insurance coverage for the Board of Directors.
D&O Insurance Usually Comprised Of Claims-Made Policies
Because D&O insurance is constructed as claims-made policies, it is able to protect former directors. In a claims-made policy, the insurer will provide the client company coverage as long as the policy is still active.
This is regardless of when the cause of the claim occurred. Instead, it’s a matter of when the claimant filed it. It makes the D&O insurance the opposite of an occurrence policy—wherein the claim’s cause should have happened while the policy is active.
What Does D&O Insurance Cover for Former Directors?
Directors & Officers insurance generally handles claims arising from the following causes:
- Breaches in fiduciary duty leading to loss of profits or bankruptcy
- Misappropriation or theft of intellectual property
- Failure to comply with organization regulations or industry standards
- Misuse of company funds
- Failure to disclose errors or willful omission of information
- Wrongful termination, harassment, or discrimination of employees
- Decisions resulting in environmental pollution
As the full extent of the D&O insurance’s coverage may vary per policy, insurance brokers and agents should familiarize themselves with the risks that the prospect organization faces so that past directors are protected more effectively.
For instance, a manufacturing company’s directors may have faced pollution claims in the past. As such, they will need an insurance product that provides environmental liability coverage for the Board of Directors. Likewise, an organization that owns multiple patents or other intellectual property may need IP theft liability coverage. If a past director made a decision that resulted in such claims against them, the D&O insurance will help protect them and the company from paying out of pocket.
Actions Typically Not Covered by D&O Insurance
Similar to other liability insurance policies, D&O insurance generally doesn’t cover crimes committed by the past director during their tenure with the organization. Some examples of such actions include assault and battery, damaging property, fraud, and theft.
However, some D&O insurance providers offer crime liability coverage to a certain limit. For instance, ProWriters’ Crime Insurance, which can also be bought as a stand-alone insurance product, can cover past directors facing the following claims for:
- Employee theft
- Client property theft
- Fund transfer fraud
- Social engineering
- Credit card or check forgery
Such claims can lead to significant financial losses, which can be difficult to recover from. As such, it would be prudent to carry this coverage whenever available.
Do All Businesses Need D&O Insurance to Protect Past Directors?
While D&O insurance is more common in larger private and publicly traded companies, which are often held liable for poor management practices and decisions, smaller businesses can also benefit from the liability coverage as additional financial protection.
Before offering this insurance to a prospect, brokers should know the organization’s needs. For instance, the company might not find it feasible to invest in the policy if they have only a few decision-makers instead of an entire board of directors. However, they may also be persuaded if they want to protect their assets in case a past officer’s mismanagement results in
a costly claim.
Protect Your Clients with D&O Insurance
While D&O insurance does cover former directors, the extent of the coverage depends on the policy for which your client signs up. You’ll want to ensure that you’re offering the right insurance product from which their past, present, and future directors and officer can benefit.
Get in touch today, and the professional and management liability specialists of ProWriters can work with you in providing comprehensive coverages while making the process simpler and more streamlined for both you and your clients.
