When researching various types of business insurance, you may have come across directors and officers (D&O) liability insurance and thought to yourself, “That’s for publicly-traded companies with shareholders.” It’s true, you may not run the risk of being sued by disgruntled shareholders, but if you have a board of directors helping to run your company, you and your directors are at risk of lawsuits from employees, customers, investors and many other interested parties. For small businesses, D&O claims may not happen very often, but when they do, the costs to fight the lawsuits can be significant. D&O insurance can help protect against these risks.
Directors and officers (D&O) liability insurance protects the personal assets of corporate directors and officers against claims brought by employees, vendors, competitors, investors, customers, or other parties, for actual or alleged wrongful acts in managing a company. It offers specific coverage not provided by general business liability insurance.
D&O insurance can be purchased as a separate policy or bundled with other forms of coverage, including Employment Practices Liability insurance to cover employee-related claims, plus crime and fiduciary coverage. 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 you’re carrying.
Directors and officers are sued for a variety of reasons related to their company roles, including breach of fiduciary duty resulting in financial losses or bankruptcy, misrepresentation of company assets, misuse of company funds, fraud, failure to comply with workplace laws, theft of intellectual property, and lack of corporate governance.