Overview of D&O Insurance
Purpose of D&O Insurance
- Protects directors and officers with insurance covering matters for which they might not be indemnified under corporate by-laws.
- Reimburses the organization after it has indemnified directors and officers in accordance with corporate by-laws.
- Motivates the organization to attract quality outside persons to serve as directors or executive managers.
- Reassures inside directors and officers.
Who makes claims that may be covered by D&O Insurance? Disgruntled shareholders, employees, customers, competitors, donors, volunteers and government entities.
Generally, what are the allegations? The above may allege financial mismanagement, discrimination or other wrongful acts. Complaints may also involve financial disclosure, breach of fiduciary duty, fraud, misuse of funds, contract disputes and business interference.
Who may they blame? Claims of managerial malpractice often lands at the feet of corporate directors and officers.
Costs of these claims include legal fees, judgments and settlements, as well as the time and emotion spent in defending them.
How to Maximize Your D&O Coverage: Buying Tips
- Be clear on the extent of coverage afforded for settlements, judgments and defense expenses.
- Is the policy endorsed to extend to EPL claims?
- Have legal counsel review the D&O policy application forms before submitting them.
D&O insurance will not necessarily protect your organization against intentional wrongdoing such as fraud, theft or blatant disregard for employees' rights. However, whether your organization is private, public or non-profit, D&O insurance should be a component of your overall insurance and risk management program.