Directors and Officers Insurance is a type of liability insurance covering directors and officers for claims made against them while serving on a board of directors and/or as an officer. D & O liability insurance can be written to cover the directors and officers of for-profit businesses, privately held firms, not-for-profit organizations, and educational institutions.
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Frequently Asked Questions About Our Services | Directors’ and Officers’ Insurance 101
Getting insurance coverage against compensation claims is something that can protect board members (and their businesses) in the long run. Employees working in any company can file a lawsuit for different reasons, and it’s critical for you as a director/officer to protect yourself and your assets.
Even though legal claims (in this context) are often made by employees, they can also be made by investors, regulators, shareholders, or any third parties. Thanks to this type of insurance, directors and officers can cover the defense costs for many of these cases.
D&O insurance often gets associated with broad management liability insurance. The latter covers liabilities for the entire corporation/non-profit organization, including personal liabilities for directors and officers.
As a nationwide supplier of surety bonds, S Philips Surety & Insurance Services aims to provide the perfect solution to private companies, educational institutions, and non-profits looking to cover the costs incurred to defend these people.
Keep reading to learn more about this service and who it helps.
Who Does Directors' and Officers' Insurance Protect?
Directors’ and officers’ insurance covers three different groups of people. You may choose any of the three options depending on your needs.
- “Side A” insurance covers directors and officers who can’t (or won’t) pay for indemnification. This is often common in cases where employees sue a company alleging that it doesn’t want to pay them. In these cases, the company may not be able to pay because it declared bankruptcy, for example. Here, the individual is the one being insured, and their assets are compromised or at risk.
- “Side B” insurance is for covering the losses of directors and officers when they pay for indemnification. They’ll get reimbursed for all the legal costs they incurred. Unlike Side A insurance, Side B covers the company and its corporate assets.
- “Side C” (or “entity coverage”) covers the corporate entity. It typically protects companies listed on the stock exchange.
You must consider how much coverage you’re looking for and what your D&O risks within your company are before choosing one of the three options mentioned. If you’re having any issues protecting your corporate or personal assets, make sure to contact our team for guidance.
Do You Need Directors' and Officers' Insurance?
- Criminal prosecution
- Civil proceedings
- Disqualifications from the director’s position
- Alleged negligent misrepresentations
Whether you have a small or big business, you should consider getting protection for such claims.
What Does D&O Insurance Cover?
Most of the time, these insuring agreements cover:
- Breach of fiduciary duty
- Failure to comply with regulations
- Creditor claims
- Reporting errors
- Lack of corporate governance
- And more
What Are Some Common Directors' and Officers' Insurance Claims Examples?
There are different private and nonprofit directors’ and officers’ insurance claims examples you can consider. Here’s a list of some common ones:
Negligent Misrepresentation: An organization receives government funding to prepare an event, but the revenue it got was much lower than the expenses. In this case, the government can file a lawsuit and argue that the funds were not used as intended in the application.
Stolen Corporate Secrets: A director/officer shared a corporate secret with someone unrelated to the company. In this case, they could get sued for wrongfully taking an opportunity that belonged to the corporation.
Credit Fraud: It can happen if a board of directors and officers gets sued because they allegedly used credit funds to cover expenses while the company was insolvent or planning to file for bankruptcy.
Recruiting Executives: It can apply if a company tries to recruit an executive with an active contract with a competing business. Here, the competitor may try to sue the directors and officers of the first company for damages that came from losing that executive by breaching a contractual relationship.
Other examples of D&O claims include lack of transparency, letting down investors, insolvency, failure to increase death benefits, and more. Keep in mind that these cases may (or may not) apply depending on whether you’re managing a public/private company or a non-profit organization.
How Much Does Directors' and Officers' Insurance for Non-Profit Organizations Cost?
It depends on different factors like:
- Company size
- Risk appetite
- Claims history
- Financial position
On average, the cost of an insurance policy for a company could be approximately $1,240 per year. Feel free to request a quote with our team to get a more accurate estimate.
What Are the Most Common Board of Directors' Liability Insurance Limitations?
Even though you may find different limitations or exclusions depending on the policy you get, there are a few “standard” exclusions in D&O policies you must consider. These include:
- Wrongful termination or discrimination (as it’s often covered by Employment Practices Liability insurance)
- Punitive damages
- Deliberate fraud
- Deliberate criminal activity
- Breach of contract
- Personal injury
- Damage to another person’s property
- Defamation, slander, or libel
- Catastrophic events (terrorism, wars, natural disasters, etc.)
- Certain types of behavior
- Managers from the same business suing each other
- Antitrust exclusions
- Commissions exclusions
If you were to get sued under multiple allegations, your policy would only pay for the ones that it covers.
Generally speaking, D&O insurance limits coverage to any mistakes made by directors or officers while working in an official capacity. Make sure to contact our team if you want to know specifically how your policy can help.
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