What is Directors and Officers (D&O) Insurance?

D&O insurance is liability insurance that protects directors or company officers from financial losses due to illegal or criminal acts. Directors and officers coverage typically covers defense costs for investigations or trials, but does not extend to intentional illegal acts. A company officer’s personal assets are at risk if proper coverage is not in place.

What are the Top 5 Risks Facing Today’s Directors & Officers?

Willis Towers Watson, a leading global advisory group, partnered with Clyde & Company, a leading global law firm, to build a report on the top risks for directors and officers. A few key findings from their research are listed below. In this post, we’re focusing on the top five risks facing directors and officers in the US.

• Cyber attacks and data loss (listed by 51% of respondents in US who said the risk was “very significant” or “extremely significant”)
• Health & safety / environmental prosecutions (47%)
• Risk of employment claims (45%)
• Regulatory risk, including threat of fines and penalties (45%)
• Litigation risk (44%)

While there appears to be some overlap of some types of insurance coverage, it’s important to remember that D&O is liability insurance to protect the officers themselves from personal lawsuits. This type of protection extends also to spouse’s assets and personal assets.

What does D&O liability insurance cover?

Directors and officers of both for-profit and non-profit organizations should have D&O protection because all company officers are at risk for litigation. In fact, any company or organization large enough for an advisory board or committee should have directors and officers coverage to protect their officers from being personally sued over their management of company affairs. D&O protects company officers from:

• Wrongful acts
• Fraud
• Improper management
• Errors in judgment
• Theft of intellectual property
• Negligence of duties
• Poaching competitor’s customers
• Misuse of company funds
• Lack of corporate governance

Cost of D&O Insurance

Several factors determine the price of directors and officers insurance. A complete quote for D&O coverage may ask how many board members or advisors work with the organization, what are the organization’s assets, and what kind of coverage is currently in place. Other factors that impact the cost are the exposure limits (although $1 million in coverage is common), if the organization is for-profit or non-profit, class of business, whether bylaws exist for the board or organization, and if it is structured as an LLC or corporation.

Wading through D&O policies can be confusing, but we can help. Contact Ricker & Associates Insurance Advisors for a free, no obligation quote.