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Do You Need Directors and Officers Liability Insurance?

Many risks that your business faces are directed at your company’s actions. However, there are other dangers that apply specifically to individuals and their actions. Directors and Officers Liability Insurance (D&O) protects your company’s CEO, COO, CFO, and other corporate officers and outside directors. Your company’s officers and directors might face claims that arise from the performance of their duties, and this kind of insurance will cover them as long as they are able to demonstrate that their actions were intended in the company’s interest.

Who Needs D&O Coverage?

Directors and Officers Liability Insurance is particularly useful for companies that plan on going public. This is because your company needs a high-profile director who is knowledgeable and credible when looking for investors, and these kinds of directors will usually require a large amount of D&O coverage.

D&O coverage is particularly prevalent in the technology world, which is one of the most unstable fields. There have been many large claims and class-action lawsuits brought against high-tech companies, and individual officers and directors are usually named as defendants, requiring Directors and Officers protection.

D&O and Small Business

Small businesses, on the other hand, are less likely to have D&O coverage. It can be an extremely expensive form of insurance, because the costs from shareholder claims can be very high for public companies. A smaller company might not be concerned about shareholder claims, but there is still a use for D&O coverage.

A small company is still at risk from suits brought by employees, and some choose to combine their D&O protection with Employee Practices Liability Insurance (EPLI) coverage. This kind of policy will cover a variety of claims, including wrongful termination, harassment, retaliation, discrimination, and wrongful discipline.

Even a frivolous lawsuit can be extremely costly to your business, with tens and even hundreds of thousands of dollars in legal fees. This is the number one reason to get D&O and EPLI coverage. Having this kind of protection not only provides coverage in the case of an actual lawsuit, but also benefits your company’s leaders. Knowing that the money will be there for any potential defenses and settlements provides peace of mind.

What kinds of insurance are you considering for your business?

Published: August 26, 2013
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Rebecca Kincaid

Operating as a Chartered Life Underwriter, Rebecca specializes in life insurance for business and estate-planning purposes. Rebecca's background also includes regional management and sales positions with leading insurance firms such as Parker & Company and Old Mutual Financial Network. In addition to her consultative support, she also acts as the Director of Life Sales for Tarkenton Financial.