Serving as a director or officer of a business or organization carries many responsibilities and liabilities. And one of the scariest liabilities you can have in this position is being on the receiving end of a lawsuit, which can be financially and emotionally devastating. Luckily, that’s where directors and officers (D&O) liability insurance comes in to protect your higher-up employees — and your business.
What is D&O insurance?
D&O liability insurance is coverage intended to protect individuals from personal losses in the event of shareholder class actions, and other types of major lawsuits. It protects individuals from personal losses in the event of shareholder class actions, and other types of major lawsuits.
Typically, this form of insurance covers legal fees, settlements and financial losses when the insured is held liable. Most allegations covered include breaches of fiduciary duty, failure to comply with regulations, reporting errors, creditor claims and a lack of corporate governance.
It is important to note that it does not cover certain specified forms of misconduct. Thes forms of misconduct can include fraud, other criminal acts and actions taken for personal profit. When a settlement is reached or a claim filed, your directors and officers won’t have to worry that their assets will be used to pay the claim.
Your liability coverage takes care of the claim up to your policy limits so your directors’ spouses, domestic partners, families and even their estates don’t suffer.
Does your business need D&O liability insurance?
When asked, most company owners would claim that D&O claims are mostly a public company phenomenon. However, public, private and non-profit companies all face D&O litigation risks, and any business with a corporate board should consider investing in D&O insurance.
Unfortunately, your company does not have to generate tens of millions of dollars in revenue to be sued over their management of company affairs. Plus, if you’re looking to attract and hold on to qualified directors, D&O coverage will protect those who might otherwise be reluctant to put their personal assets at risk.
Similarly, if you receive funding from investors, you will likely need to have D&O coverage as a form of protection for your investors and if you’re starting a new business, investing in D&O insurance is the right choice for you and your business.
How much D&O insurance do you need?
Given the rising cost of D&O insurance premiums for private companies, the following are some questions you should ask yourself or your board to determine an appropriate D&O insurance limit for your business.
- How much D&O insurance is available to my company in its current stage?
- Who might be likely plaintiffs in potential litigation?
- Are we going public?
- Are we in a regulated industry?
Contact SFM Insurance
If you are ready to take the first step in learning more or purchasing Directors & Officers insurance for your business, contact SFM Insurance for a free consultation. We can help you find a policy that meets your needs and protects your employees. For more tips and our latest updates, visit us on Facebook, Twitter or LinkedIn!
