Do I Need Directors and Officers Insurance?

In addition to providing direct protection of senior management, D&O coverage can also reimburse your company if it has to pay to defend or settle a claim and also protect your business if the company itself is named in a lawsuit.Directors and officers insurance is a type of errors and omissions coverage for lawsuits seeking damages for financial injury.

D&O protects the personal assets of your company's officers and the assets of their spouses and their estates.

D&O also protects the balance sheet of the company itself from lawsuits claiming financial injury by LPs, shareholders, state or federal agencies or third parties, such as competitors, vendors or lenders.

D&O insurance is broken down into three separate coverage types:

Side A - Directors and Officers Liability: This coverage protects the personal assets of directors and officers. If a company is unable or unwilling to indemnify its directors and officers, perhaps because of insolvency, a bankruptcy filing or by law, Side A provides protection for company leadership. No retention applies.

Side B - Indemnification: This coverage reimburses companies for the cost of indemnifying and defending their directors and officers in a claim. Retention applies.

Side C- Corporate or Entity Coverage: Covers lawsuits filed directly against the corporation. If your company is sued for financial mismanagement, this coverage protects the company itself. Corporate coverage terms vary depending on whether the company is public, private or not for profit. Retention applies.

Each coverage type has its own terms and limits.

When deciding on the limits of D&O coverage, it's important to consider that defense costs fall within the limits of insurance. This means that as legal costs mount, they erode the amount of coverage left for any claims payment that could result.