The Directors and Officers Liability Insurance Policy covers a company’s directors and officers for claims made against them while serving on a board of directors and/or as an officer. Public companies, private companies, for-profit and not for-profit entities can all purchase D&O Insurance. The policy covers claims resulting from managerial decisions that have adverse financial consequences. A few unique features of this policy are that it is usually written on a claims-made basis, it often contains no explicit duty to defend the insured and it excludes bodily injury and property damage.

Here’s what you need to know about D&O Insurance:

  • Yes, your private company needs directors and officers liability insurance. Depending on the situation, directors and officers may have a personal liability exposure where their personal assets are at risk in exchange for serving in an executive management capacity or for making discretionary business judgments.

  • There are three parts to a D&O policy: Side A typically pays for directors and officers liability for situations where they are not indemnified by the corporation or organization. Side B provides the company or organization with insurance proceeds after the company has indemnified the director or officer. Side C usually defends the company or organization when it is the defendant in managerial litigation.

  • Some state laws require corporations to provide indemnification for directors and officers when certain types of claims are filed against them. There may not be any statutory protections or immunities for the organization or the individual serving as a director or officer for certain claims.

  • When corporations purchase D&O liability insurance, it makes it easier for them to attract quality “outside” individuals to serve in an executive management capacity.