Directors’ and Officers’ Liability Insurance – “D&O Insurance” – is important for growing firms in all industries.
Business owners invest in various types of insurance to protect against accidents, fraud, employment liability and other types of risk. It’s a big part of managing risks and protecting an organization’s assets.
But what about the actions that organizations undertake? Or the actions they do not undertake? Who is responsible for those matters? The directors and officers are responsible, and they carry significant liability for their actions.
More and more, D&O insurance policies are a necessary part of managing risk and building a successful organization.
Why D&O Insurance?
Good leaders accept that “The buck stops here – with me.”
It’s a central part of leadership – taking responsibility for your decisions and the organization’s performance. Part of being a leader is accepting the risk that comes with those positions.
Directors’ and Officers’ Liability Insurance prepares a company’s leaders for that hard reality.
D&O Insurance – How it Works
D&O insurance covers the costs in the event that a company’s leaders are sued for wrongful acts while they were with the company. The policies apply to:
- A company’s directors
- A company’s officers
- The corporation itself
Depending on the case, a D&O policy will cover:
- Legal costs
- Personal and professional liability
- Penalties from regulatory proceedings
D&O Insurance Manages Risk
In today’s corporate environment, directors and officers need protection for a few specific reasons.
Corporate Status Does Not Offer Complete Protection –Many organizations believe they are protected by their incorporated status. That’s not fully accurate; corporate status does not protect its directors and officers. The truth is directors and officers of a corporation are responsible for their own actions as well as those of the corporation.
There have been legal cases where the courts have assessed damages against corporate directors for their wrongful actions. In some cases, the courts have imposed specific legal responsibilities on directors.
In other cases, corporate directors have been held responsible for the actions of other directors.
It’s delicate, but these are the realities of governing in the corporate environment.
Nowhere to Run – Resigning from the organization does not protect you. If a director resigns from the board, or an officer resigns from the company, those people are still liable even after they have resigned. People are liable for decisions made on their watch, as well as decisions that did not make.
Working for Charity is No Protection – Liability is not limited to the organizations pursuing profit in competitive industries. Non-profit organizations are equally vulnerable, and their stakeholders can complain and take action against them. Potential plaintiffs include government agencies, donors, vendors, service recipients alleging injury from the organization’s actions or failure to act. The risk applies to both employees and volunteers.
Certain policies extend coverage beyond the standard areas and include coverage for non-profit volunteers and trustees, as well as staff and board members.
Potential Directors Require Insurance
There is another key reason to consider D&O insurance. Many future directors or officers will require it before they join the company. In the early days of your company, you may be able to get away without D&O insurance. But as your company grows, D&O insurance will become a necessity.
D&O Insurance – Preventing Permanent Damaging
Companies in all sectors are at risk from legal action from their shareholders, partners, customers, regulators, employees and the general public.
And without D&O insurance, a lawsuit can be permanently damaging to an organization’s performance and long-term interests.
The good news is a proper D&O insurance product covers any liability exposures that an organization may face.