What is Directors and Officers Insurance?
Directors and officers (D&O) insurance is a type of liability insurance that protects directors and officers of a company from legal claims arising from their professional activities. This can include claims for breach of fiduciary duty, negligence, and other wrongful acts.
D&O insurance can protect directors and officers from both personal financial losses and the financial losses of the company. For example, if a director or officer is sued for a wrongful act and loses the case, the D&O insurance policy can pay for the legal defense costs and any damages awarded to the plaintiff. The policy can also pay for the company's legal defense costs if it is sued for a wrongful act committed by a director or officer.
D&O insurance is important for all businesses, but it is especially important for businesses that are exposed to high levels of risk including not-for-profit organizations. For example, businesses that operate in highly regulated industries, such as healthcare and finance, are more likely to be sued. Businesses that have a large number of employees or that operate in multiple jurisdictions are also more likely to be sued. While it is unusual to see suits brought against directors of non-profits, it can certainly happen.
If you are a director or officer of a company, it is important to understand the risks that you face and to consider whether D&O insurance is right for you. You should also talk to your insurance agent about the different types of D&O insurance policies that are available and how much coverage you need.
Here are some of the things that D&O insurance can cover:
- Breach of fiduciary duty
- Negligence
- Misrepresentation
- Breach of contract
- Defamation
- Invasion of privacy
- Securities fraud
- Insider trading
- Regulatory violations
- Employment practices issues
D&O insurance can also cover the cost of legal defense fees, settlements, and awards.
Here are some of the reasons why you might need D&O insurance:
- Your company is facing a lawsuit.
- You are accused of wrongdoing in your role as a director or officer.
- Your company is in financial trouble and may not be able to afford to defend you.
- You want to protect your personal assets from being used to pay a settlement or judgment.
If you are a director or officer of a company, you should talk to your insurance agent about whether D&O insurance is right for you.
How much does D&O insurance cost?
The cost of D&O insurance varies depending on a number of factors, including the size of your company, the industry you are in, and the level of coverage you need. In general, D&O insurance is relatively affordable. For a small business, the cost of D&O insurance can be as low as a few hundred dollars per year. For a large company, the cost of D&O insurance can be tens of thousands of dollars per year.
How to choose the right D&O insurance policy
There are a number of factors to consider when choosing a D&O insurance policy. These include:
- The level of coverage you need.
- The types of claims that are covered.
- The deductibles and coinsurance requirements.
- The policy limits.
- The terms and conditions of the policy.
It is important to talk to your insurance agent about your specific needs so that you can choose the right D&O insurance policy for your company.