Businesses have access to many different insurance options to protect against the myriad of risks they face on a daily basis. These insurance policies are generally split into 2 main types: commercial property insurance and commercial liability insurance.
Under the broad commercial liability insurance category sits a unique kind of insurance called: Directors and Officers (D&O) insurance, sometimes called Management Liability insurance.
What is D&O insurance?
D&O insurance can be considered a type of professional liability insurance for corporate executives.
In every private or public company, and even non-profit organization, officers and directors have an obligation to meet common law, statutory and shareholder duties. Generally speaking, directors and officers are required to perform their duties in good faith, act within the scope of applicable by-laws and place the interests of the organization before their own. More and more, they are being held accountable for their actions (or omissions) while overseeing their businesses; lawsuits can come from shareholders, customers, suppliers and even employees.
To combat this, Directors and Officers insurance is a type of liability insurance that reimburses company directors, officers or even the company itself for any losses incurred in order to defend a legal action brought against them alleging some wrongful acts while performing their duties as an officer or director. This includes coverage for personal liability for unpaid taxes in the event of insolvency, legal fees, court costs and other supplementary costs incurred in defending the lawsuit in addition to any settlement or judgement made against you. Many insurers also include coverage for amounts spent on public relations or “crisis costs” as well as lifetime coverage for retired directors and officers.
Should I buy D&O insurance?
Directors and officers of public companies are they most at risk as they are under the most public scrutiny and shareholder activism has increased over the last few years. For public companies, D&O insurance is necessary to protect directors and officers in the case of insolvency or allegations of wrongdoing.
Private companies and non-profits are not as exposed but still carry risks. Directors and officers can be sued alleging misrepresentation, conflicts of interest or some other breach of their fiduciary duty.
Either way, once your organization gets to a certain size or prominence, it makes sense to protect your key stakeholders against costly and time consuming management liability issues.
How much does it cost?
Costs for D&O insurance vary greatly based on the type of organization you run, the limits, geographic regions of coverage, quality of your business, and other factors. As a rule of thumb, a public company would pay a higher premium than an equally large private company.
To learn more about the different coverages available and get a more detailed quote, contact us.