What is directors and officers insurance?

Corporate directors and officers assume obligations to shareholders, third parties, and the company itself. Directors or officers are exposed to personal liability as a result of their acts or omissions with respect to their duties. While the company may indemnify its executives for certain claims, there may be instances where the company is unable to offer personal asset protection. Directors and officers (D & O) insurance provides financial protection for liability claims brought against individuals acting in their capacity as corporate directors or officers.

While commercial D & O insurance generally can be tailored to meet the specific risks of the company and its management, most policies provide coverage for the following types of claims: employment-related claims such as wrongful termination, sexual harassment, and discrimination; claims of securities fraud such as intentional concealment of information, or insider trading; and shareholder derivative lawsuits for claims against board members brought on behalf of the corporation, usually alleging mismanagement of assets.

D & O insurance differs from errors and omissions insurance and general liability coverage. D & O insurance covers claims for nonphysical harm arising out of the performance and duties of company management. Errors and omissions or professional liability insurance protects a business or individual from claims made by consumers of products or services. Corporate general liability insurance protects board members and officers from claims arising out of bodily injury and property damage.

Certainly you should consider D & O insurance if you serve as a member of a board of directors or officer of a publicly traded corporation. But even if you manage a closely held corporation, partnership, or trust, you may be susceptible to lawsuits from stakeholders such as bondholders, creditors and lenders, customers, employees, and regulatory agencies. Consult your financial professional or legal representative to get more information about the potential risks you face as an officer or director, then consider asking your company to protect you from possible claims by purchasing D & O insurance.