Directors & Officers (D&O) Liability Insurance

Serving as the leader of an organization can be difficult, especially in times where operations go awry or the business is under public scrutiny. For this reason, another form of insurance — directors & officers liability insurance — can be a big benefit. Also called D&O insurance, directors & officers liability insurance is meant to protect the very people its name describes: directors, officers and other leading individuals on a company or organization’s board of directors or management group. D&O insurance offers added financial protection in legal situations that may arise brought on by former employees, investors, vendors, customers or competitors.

What is Directors & Officers Liability Insurance?

Directors & officers liability insurance is a form of business insurance that offers protection for the leadership of a company or organization. In many situations of perceived wrongdoing, individuals may choose to file lawsuits against the leadership of a company, non-profit organization or business. Since these leaders — often people part of the organization’s board of directors or officers — are targeted individually as opposed to the company, other forms of company insurance may not cover the hefty legal fees they face as a case goes to court. D&O liability insurance can be of benefit here in helping to cover the cost of specific individuals in the event they are named in a lawsuit, protecting their personal assets and finances in the case they are found negligent or responsible for court fees.

Directors & officers liability insurance is often provided to company or organization leadership because it offers protection for their work — the idea being that they invest time, effort and good faith into the company without the intention of purposeful wrongdoing. This kind of insurance acts as a shield, easing company leadership from the worries of lawsuits related to the choices and strategies they make on behalf of the company. In many industries, D&O liability insurance may be a requirement requested by a new director or company leadership before they will accept a role with the business.

Common Lawsuits Directors and Officers Face

Many individuals will sue companies for negligence or their role in wrongdoings such as property damage, financial losses or injury. While directors and officers can often be named in those lawsuits, it is more common that they may face legal action for reasons such as:

Misrepresenting the business’ assets, employee or financial status

Some business contracts may require companies to have a certain financial worth, number of employees to handle work, or meet particular requirements. In situations where one company or individual feels duped based on inflated numbers or figures that led them to select a particular business, a lawsuit could be coming.

Theft or embezzlement

In some situations, a company director may be targeted for stealing trade secrets or other private, intellectual information. These kinds of lawsuits can put a halt on current and future company operations, as well as a financial burden as the case moves through court. D&O liability insurance may also be helpful in cases of embezzlement, where multiple directors may be named for being negligent — that is, failing to monitor situations where another individual has stolen funds from the company. Though, it should be noted that individuals who steal from a company likely will not have their defense fees covered by D&O insurance, as these are criminal charges as opposed to civil suits.

Violating state and federal workplace laws

Wrongful termination or discrimination suits are commonly filed against organization directors and employees. According to a 2008 study by TowersPerrin, 40% of D&O claims involved violation of employment laws or unethical practices. In these scenarios, D&O insurance can offer some help with the cost of legal fees and settlements should a court rule against a director or officer. In the event that a company leader is accused of violating workplace laws, this insurance policy can offer some protection, especially in situations with large settlements or payouts.

Fiduciary duty failures that lead to financial losses and dismay

In some instances, directors and officers have been taken to court for failing to make timely decisions involving a company’s finances, or for making decisions that have negatively impacted the company and its shareholders. D&O insurance can be beneficial in nearly any situation where a board member or leader is personally sued for their actions that cost the company or others money.

While directors & officers liability insurance varies among policy providers and companies, most policies can help with court costs and legal fees related to these situations. In many cases, D&O insurance can also help with the cost of court settlements, judgments, and other payouts. Though it is important to know that D&O insurance will not cover fees related to any illegal actions that a director or officer commits.

Does My Organization Need D&O Insurance?

Many company leaders and directors are skeptical of D&O insurance as simply an additional cost, or a form of insurance only needed for large companies. But contrary to common belief, D&O insurance is beneficial for companies and groups of all sizes. In many cases, general liability or umbrella insurance policies may fall short on the kinds of coverage your organization might need. In these situations, your company may be stuck with the remaining costs of a lawsuit or other legal situation.

A variety of organizations can benefit from D&O insurance, including:

  • Privately held companies
  • Publicly traded companies
  • Non-profit and not-for-profit organizations
  • Businesses of all sizes

According to a 2013 survey by insurer Chubb, the average cost of a D&O lawsuit is $697,902, which includes the cost of settlements, judgments, fines and legal fees. Regardless of your company’s size, this amount can disrupt operations or leave a company struggling in the red. With the aid of D&O insurance, the costs of a lawsuit can simply be a small speed bump instead of a source of financial ruin.

How Much Does D&O Insurance Cost?

The cost of D&O insurance varies based on your organization’s needs, size and level of risk. Many D&O policies range from $1,500 for small business to $20,000 for larger companies.

In many cases, insurance companies offer a variety of options that can be adjusted to your company’s needs, ensuring you do not overpay for excessive protection or select a policy with too little of coverage.

Interested in D&O liability insurance? Speak with one of PolicyZip’s D&O insurance specialists today by calling 844-627-7700 or filling out the form below.