Business insurance protects your business from covered events, such as windstorms and vandalism. Another option that you can include covers directors and officers from legal costs associated with their duties.
Here’s more on how directors and officers (D&O) liability insurance works and who may need it.
Overview of D&O Business Insurance
Directors and officers liability insurance protects companies with shareholders who might get sued by disgruntled employees, investors and customers. For small businesses, this coverage gives you the resources to fight significant lawsuits without risking personal financial ruin.
If you are a corporate director or officer, D&O liability insurance safeguards your personal assets if you face a lawsuit filed by competitors, employees, vendors, customers or investors — provided that the lawsuit alleges you committed wrongful acts committed in your leadership role.
To attract the best leaders, companies must prove they are ready and able to take care of legal services associated with directors and officers doing their jobs. This insurance also protects the company and pays for settlements, legal fees and other costs associated with lawsuits. An indemnification provision in employment contracts can protect directors and officers from financial losses related to their job. Moreover, D&O liability insurance provides the financial backing to execute this commitment.
Here are the most common reasons individual and other companies sue directors and officers:
- Breach of fiduciary duty (can result in a financial loss for the client)
- Misuse of company funds
- Theft of intellectual property
- Insufficient or nonexistent corporate governance
- Failure to adhere to workplace laws
Illegal acts are not covered by D&O policies.
Should Your Business Have D&O Coverage?
Private, public and non-profit companies could all face a threat that may cripple the organization’s leaders in the absence of D&O business insurance. Your insurance agent can instruct you on assessing the risks of your own company. However, if your company has an advisory committee or corporate board, you should at least consider purchasing D&O insurance.
D&O insurance comes as a separate policy or as part of bundled business insurance policies. If you already have employment practices liability insurance, you may want to add D&O insurance to obtain comprehensive fiduciary, crime and employee-related coverage.
Whether you pull in millions of dollars or operate a modest local business, it’s important to choose a business insurance policy that protects your personal assets. After all, small to midsize organizations have even more to lose than corporations with deep pockets do.
We’re here to help you save. Call U.S. E&O Brokers at (800) 460-6424 for more information on D&O insurance.