Directors and officers in public companies, private companies, and nonprofits alike make decisions that can have significant financial and legal implications. If a decision results in losses or harm to stakeholders, directors and officers may face lawsuits alleging negligence or breach of duty.
What is D&O Insurance? Short for “Directors and Officers Insurance,” D&O Insurance protects these individuals from legal action and financial losses resulting from allegations of wrongful acts in their roles.
What Is the Purpose of D&O Insurance?
What D&O Insurance is, primarily, is a way to financially protect directors and officers in legal actions stemming from their duties.
With funds from D&O Insurance, directors and officers can have access to a panel of competitive legal counsel, investigate claims, and defend themselves against allegations. The policy lets them maintain focus on managing the organization without worrying that mounting legal expenses will deplete their personal finances.
D&O Insurance can cover a wide range of individuals beyond directors and officers. It can protect executives, board members, and even volunteers holding positions of authority or making key decisions.
D&O Insurance can also safeguard the organization itself. In some cases, regulatory bodies or stakeholders may name the organization as a co-defendant in a lawsuit. The entity coverage a D&O policy provides covers the organization’s defense costs, helping preserve its reputation and financial stability.
What Claims Does D&O Insurance Cover?
D&O Insurance policies can cover a variety of risks, including:
Breach of Fiduciary Duty
Directors and officers have a legal obligation to act in the best interests of the organization and its stakeholders. If they face accusations of mismanagement or negligence, D&O Insurance can cover costs associated with their defense.
Regulatory Violations
Organizations must often adhere to many regulations. Failure to comply can lead to legal action from regulatory bodies. D&O Insurance provides coverage for defense costs and any potential settlements or judgments.
Intellectual Property Infringement
If a director or officer is accused of using copyrighted material without permission or infringing upon another organization’s patents or trademarks, D&O Insurance can cover defense costs.
Wrongful Termination or Other Employment Liability
Directors and officers often make hiring, firing, and promotion decisions. If employees feel these decisions have harmed them, they may file a lawsuit alleging discrimination, harassment, or wrongful termination. D&O Insurance can cover defense costs and any potential damages awarded.
Rather than relying on D&O Insurance in employment claims alone, organizations should also consider Employment Practices Liability Insurance (EPLI). EPLI is insurance focused on covering employment-related claims.
What Does D&O Insurance Not Cover?
While D&O Insurance offers substantial benefits, these policies may exclude certain claims, including:
Criminal Activity or Intentional Acts
If a director or officer engages in fraudulent behavior, embezzlement, or other intentional acts leading to harm or losses, D&O Insurance won’t provide coverage for legal fees or damages.
Bodily Injury or Property Damage
D&O Insurance protects individuals in leadership from claims related to their management decisions and actions. General Liability or Property Insurance policies usually cover bodily injury and property damage risks.
Breaches of Contract
If a director or officer enters into a contract on an organization’s behalf and fails to meet its obligations, D&O Insurance may not provide coverage for legal costs or damages. Organizations need Contractual Liability coverage to protect against these risks.
Also worth noting: D&O Insurance is typically a claims-made policy. It covers claims made only during the policy period. It may not cover claims made after the policy has expired or arising from an act that happened before the policy’s retroactive date (if applicable).
What Is D&O Insurance for Nonprofits?
Nonprofit organizations and associations work to create positive change and serve the community. But their unique nature makes D&O Insurance particularly important to them.
Nonprofits often rely on grants, donations, and funds entrusted by stakeholders. This reality makes them susceptible to allegations of mismanagement or improper use of funds.
D&O Insurance tailored for nonprofits can protect directors and officers against legal claims related to fiduciary duty breaches, regulatory violations, and mismanagement of funds.
D&O Insurance can help maintain donors’ confidence and trust, ensuring the organization’s continued operations and ability to fulfill its mission.
How Is D&O Insurance Different from Professional Liability Insurance?
The main differences between Professional Liability Insurance and D&O Insurance are the scope of coverage and types of claims against which they protect.
D&O Insurance protects individuals in leadership from claims related to their management decisions and fiduciary duties. Professional Liability Insurance, or Errors and Omissions Insurance (E&O Insurance), protects individuals or firms against claims of negligence, errors, omissions, or other mistakes that may occur in the course of their professional duties.
Also, D&O Insurance typically covers claims made against individuals in leadership positions, but Professional Liability Insurance covers claims made against professionals in specific fields.
Some professionals, such as attorneys or accountants, may need both D&O Insurance and Professional Liability Insurance to ensure comprehensive coverage.
ProWriters Makes Securing First-Class D&O Coverage Simple
Now that you know more about what D&O Insurance is, you need to know how best to secure it for your business clients.
ProWriters has experience and expertise in D&O Insurance for businesses and nonprofits in a wide range of industries and economic sectors.
Our brokers have access to D&O products from multiple leading carriers.
Our educational resources can help you stay up-to-date on developments in the field.
And our dedicated, responsive customer service team gives you prompt, practical answers to your questions.
To discover more about how we’ll help you secure first-rate D&O Insurance service for your clients, schedule your meeting with ProWriters now.
