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  • Directors and Officers (D&O) Liability Insurance
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    Types and Costs of D&O Coverage

    D&O insurance policies offer liability insurance coverage for the Directors and Officers of non-profit, for-profit, and privately held businesses.  Directors and Officers insurance helps protect them from defense costs and damages which may arise from managerial decisions that may have adverse financial consequences. All organizations are vulnerable to D&O insurance exposures. Read more about the who, what and why of D&O insurance

    D&O insurance can be purchased as a separate policy or bundled with other forms of coverage. Usually, it’s purchased by the company for the benefit of officers and directors. It may be more cost-effective for smaller companies to purchase a combination policy that includes D&O plus Employment Practices Liability insurance to cover employee-related claims, such as harassment, discrimination, and wrongful termination. Some comprehensive policies may also include crime and fiduciary coverage.

    A typical D&O insurance policy designed for a privately held business may include three types of coverage:

    • A-side coverage. This part covers directors, officers, and sometimes employees, for defense costs, settlement fees, or judgments if the company cannot indemnify them, such as if the company has declared bankruptcy.
    • B-side coverage. This covers the company for directors', officers', and employees' losses when the company does indemnify them.
    • C-side coverage. Also called “entity coverage,” this financially protects the corporation in its own right. Entity coverage may reduce the limits available to protect the individual officers and directors.

    The cost of D&O insurance is based on a variety of factors, including the type of business, your company's revenues, whether you have had prior legal claims, and the amount of debt. According to this 2013 Advisen report PDF, a provider of information and analytics services to the commercial insurance industry, the average annual cost per million dollars of coverage paid by private companies with revenues up to $50 million falls in the $5,000 to $10,000 range. But you may be able to secure sufficient coverage for much less. The only way to know the premium cost for your company is to get quotes from several insurers.

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    Work with an insurance professional who specializes in D&O and other business liability insurance products so you can get a complete picture of your company’s risks and exposures.

    As with all insurance products, read your policy carefully to make sure you’ve got coverage for a wide range of claims, from regulatory actions to criminal investigations and employee lawsuits. Here are a few things to consider when discussing D&O insurance with an insurance professional:

    • Should the policy just cover directors and officers or also the company as a whole?
    • Does the policy cover innocent directors if one director or officer is found guilty of wrongdoing?
    • Will the policy cover allegations of criminal misconduct up to the point of adjudication?
    • What policy limits (generally provided in $1 million increments) do you need?