Written specifically for those who serve as officers or on a board of directors, liability policies for directors and officers (D&O) provide peace of mind as well as protection. These policies are designed to protect upper-level decision makers and representatives and the organizations they serve from claims of wrongdoing and poor leadership resulting in financial losses.
Who Needs D&O Coverage
Often included in a risk management portfolio by businesses, privately held funds, organizations, and educational institutions, this protection can be specified to safeguard an individual’s personal assets as well as those of the company or organization they serve.
Anyone who may be held legally liable for organizational decisions is a candidate for D&O coverage.
Common claims covered by D&O include:
1.) Negligence in which an individual intentionally or unintentionally fails to exercise a reasonable degree of
action or care resulting in a liability claim.
2.) Wrongful acts such as statue violations, conflict of interest, fraudulent financial statements, a tort, and
improper self-dealings that trigger an error or omission.
3.) Improper management and situations when an individual fails to properly oversee and guide an
organizations day-to-day or long-term operation and wellbeing.
4.) Errors in duties such as failure to file appropriate reports, excessive absences, or failure to supervise or
uncover wrongdoings within an organization.
5.) Violation of workplace laws such as claims of wrongful termination and discrimination based on gender,
sexuality, religion, etc.
6.) Theft of intellectual property related to key personnel who leave an organization to work for or shares
trade secrets or sensitive information with a competitor.
7.) Misrepresentation claims including implied or actual falsifications of information related to the
D&O Versus Other Liability Coverage
On the surface D&O coverage may seem very similar to that found in errors and omissions (E&O) policies, but the difference lies in the type of work done by the individual. D&O policies focus on management decisions, while E&O coverage is more concerned with the products and services offered by an organization.
Policies for D&O also differ from commercial general liability policies because D&O coverage includes “shirking limits” provisions which reduce the policy’s limits according to defense costs.
D&O coverage is also unique because policies:
1.) Are written on a claims-made basis.
2.) Cover monetary damages instead of bodily injury or property damage.
3.) Do not include a duty to defend the insured in the case of most for-profit businesses.
When to Seek Coverage
Don’t wait until your organization grows to high-value or high-profile to seek D&O coverage. Smaller revenue does not mean immunity from claims that could significantly damage or end your organization. D&O coverage is advised for any organization with a corporate board or advisory committee structure whether for non- or for-profit in nature.
Coverage is especially important for organizations in the process of securing investors and venture capital as D&O coverage serves as a form of protection for investors.
For example, directors and officers of a company which defaulted on outstanding loans may be sued by investors and creditors for breach of fiduciary duties. Claims of failing to identify, evaluate, negotiate, and secure the sale of company assets in a timely manner may be covered by D&O protection.
From an individual standpoint, securing D&O coverage may help your organization attract and retain qualified officers and directors. Without proper personal protection, these individuals may be reluctant to serve if it means exposing their personal assets.
Advise for Experts
Much like the individuals you trust to guide your organization, the experts at Taggart are eager to provide comprehensive solutions to your organization, its structure, and the associated risks. Contact us to discuss how we can meet your needs.