Directors and officers liability insurance protects past and current company directors and officers from damages ensuing from alleged or real unlawful actions they may have taken while carrying out their duties. D&O insurance offers security for the company in the event of any real or alleged mistake, omission, misinforming statement, or breach of corporate responsibility and is available for leaders of both for-profit and non-profit organizations. D&O liability insurance also provides several useful functions for organizations aside from protecting them from their leaders’ mistakes.Many investors expect that a company carries D&O liability insurance as a condition for providing financial support. D&O insurance also protects the personal assets of directors and officers in even that a legal judgment goes against the company, which is why many of the world’s largest corporations carry D&O policies. These judgments can stem from claims made by employees, customers, stockholders and government agencies.
Nonprofit agencies also use D&O insurance to protect their assets. In the event that a nonprofit agency has a judgment rendered against it, the D&O insurance pays off some or all of the judgment and allows the agency to continue its work, rather than face a heavy financial burden that could shut its doors. D&O insurance also covers attorney’s fees accumulated while developing a legal defense strategy, but does not cover fines, lost wages, penalties, taxes or multiplied damages.
A standard D&O policy carries limits ranging from $500,000 to $1 million per claim with a $5,000 deductible. This means that the company must pay the first $5,000 in damages while the policy covers the rest. If the claims exceed the policy’s limits, the company must pay the remainder. A D&O policy also does not cover damages attributable to product failures or employee negligence unless those damages are related to the misdeeds of the directors or officers.
