Understanding Directors and Officers Insurance

Directors and officers (D&O) liability insurance protects your leadership team from client, employee, stakeholder, or competitor lawsuits alleging misconduct.

Your board of directors and company officers are key players in your business. Sometimes, unhappy clients or employees single out individual executives and blame them for a bad business decision, financial mismanagement, or wrongful termination. D&O insurance protects their assets during a business-related lawsuit.

What Is Directors and Officers Insurance?

There are many ways to protect your business from financial loss. Commercial business insurance makes you whole after various loss scenarios, including lawsuits, property damage, car accidents, and cyberattacks. However, sometimes business insurance isn’t enough to protect the people that shape your company’s success.

Directors and officers are responsible for making business decisions that can have significant repercussions for employees, clients, stakeholders, and business competitors. If a claimant singles out one of your executives in a lawsuit, D&O insurance covers their defense costs and settlements.

Benefits of Board of Directors Insurance Policies

Any public company, private company, or nonprofit organization with a board of directors can benefit from D&O coverage. Even if your risks are minimal, D&O liability insurance provides an extra safety net for your top employees. Having good D&O coverage is also a great way to attract high-level executives to your company.

D&O insurance allows your executives to make crucial decisions on behalf of your company without fearing personal financial repercussions. Even when your leadership team makes sound, reasonable decisions, they can still get hit with a lawsuit that could drain their savings. D&O insurance covers claims relating to:

  • Financial mismanagement: If your company suffers financial loss or bankruptcy, your stakeholders or clients may sue an individual for misuse of funds.
  • Financial misrepresentation: Claimants may accuse directors of misrepresenting your company’s financial assets and sue them for damages.
  • Intellectual property theft: Competitors can sue executives for stealing copyrighted materials, creative ideas, trade secrets, or products.
  • Breach of workplace laws: Employees sometimes bring suit against individual executives or HR directors for allegedly breaking workplace employment laws.
  • Breach of duty: If a client, employee, or stakeholder feels that one of your executives either fell short of or overstepped their job duties, they may sue.

A lawsuit against one of your directors or officers, even when unfounded, can be financially ruinous for the individual and your business. D&O insurance protects your business and the employees that lead it.

See if D&O Insurance Is Right for Your Business

If you’re unsure whether D&O coverage will benefit your business, our Southpoint Insurance team can help. We examine your company’s risk factors and find competitive quotes from top-tier insurance providers.

Elements of a Directors and Officers Insurance Policy

In a D&O policy, losses are typically covered on a claims-made basis, meaning that they cover claims made after a specified start date for as long as the policy is in effect. You can sometimes bundle D&O coverage with employment practices liability insurance (EPLI), which covers companies against allegations that they violated workplace discrimination laws.

D&O policies have three insuring agreements that dictate what is covered, when coverage kicks in, and how it applies: Side A, Side B, and Side C. Some insurance companies offer standalone side A coverage, whereas others provide all three in one policy.

Side A Coverage

When directors and officers need direct monetary help from the insurance provider, side A coverage applies. Direct financial assistance is usually needed after a company files bankruptcy and can’t provide funds to cover an individual’s business-related lawsuit.

Side B Coverage

During director and officer lawsuits, many companies choose to pay for defense and settlement costs on behalf of their employee before the insurance company makes a claim payout. In these instances, side B coverage reimburses businesses for lawsuit costs.

Side C Coverage

Side C coverage, also known as entity coverage, covers a company’s defense costs when both the company and its executives get sued. Publicly traded companies are only covered for securities claims, while private and nonprofit companies receive more side C benefits.

What Is the Difference Between D&O and E&O Insurance?

When considering the professional liability coverages your business might need, you might wonder if there’s a difference between D&O and errors and omissions (E&O) coverage. Though these two policies sound similar in theory, they offer separate coverages. You might need one or both coverages to protect your business risks.

D&O insurance covers cases brought against individual members of a company relating to their business actions. E&O insurance covers lawsuits arising from the professional services of a company. Whereas D&O insurance covers suits against a company’s board of directors and executives, E&O covers suits against the company itself or anyone in a company that provides a professional service.

For example, if an insurance professional fails to secure coverage for a client before a deadline or makes a mistake on a client invoice, the client can bring suit against the company for service errors. An E&O policy would cover this suit. If a claimant solely blames a director or officer for business mistakes or financial loss, a D&O policy would cover the defense costs.

Finding the Right Directors and Officers Insurance

D&O insurance is complicated, and it can be challenging to know if your business needs it. If you decide that a D&O policy would be beneficial for your business, you have to choose between insuring agreements and decide whether to bundle your coverage with EPLI. If you’re unsure where to start, Southpoint can help.

Our team members have decades of experience finding the best coverage options for our clients. We use our expertise to determine your coverage needs and identify the most comprehensive policy for your business. Because we have long-term partnerships with some of the leading insurance carriers, we know how to get the best coverage for your budget. Contact us today to discuss your D&O coverage options or request a quote.

Protect Your Key Executives

A D&O policy can attract great employees, instill confidence in shareholders, and protect the assets of your executives and their families. If you’re looking for a cost-effective D&O policy from a trustworthy insurance company, Southpoint has you covered.

Let’s Talk