I usually talk about types of insurance that we all know and understand. Today’s column is a break from that norm. Buckle up and let’s explore the little-known world of D&O insurance.
Who needs this type of coverage?
If you sit on the board of directors of any company or non-profit organization, or if you are an officer in any company, no matter how small, you may need Directors and Officers insurance. It’s often referred to by its acronym, D&O insurance.
What exactly is D&O insurance?
Directors and Officers insurance protects those who serve as officers or directors of companies from personal lawsuits arising from their duties and responsibilities while serving in these positions of trust.
It is intended to be a part of an indemnification plan by the organization to “hold harmless” officers and directors from personal risk during their tenure in these positions of responsibility.
Wow. That was a mouthful.
In short, it’s insurance in case you are personally sued because of your management duties.
Practically speaking, D&O is designed to protect you and your assets from personal lawsuits if you are accused of dropping the ball while leading a company.
General liability coverage isn’t enough.
Doesn’t the company’s general liability policy cover officers and directors?
No. General liability coverage protects a company... not an individual.
Directors and officers have a personal and legal “duty of care” when they run a company. People file lawsuits every day alleging that directors or officers were personally at fault for things that went wrong.
Company gets sued? General liability coverage kicks in.
Board member or corporate officer gets sued? D&O kicks in.
Here are some typical D&O lawsuits:
- Mismanagement: You get accused of not overseeing the decision makers under you properly, and they have steered the company into dark waters. You can be held personally responsible for not knowing what they were up to.
- Misrepresentation: Even if others under you prepared the numbers, board members and officers are responsible for making sure the numbers are legitimate. Loans, sales, mergers, and acquisitions are all based on good data. If the books aren’t right, you can be personally sued.
- Employment practices: Yes, there is business insurance for that. But it can be alleged that officers and board members ought to have known what was going on. A way for an aggrieved employee to send a message is to sue the individuals who run the company, as well as the company itself.
Why I’m writing about this:
According to a Chubb survey in 2013, only 28% of businesses had D&O insurance in place to protect their management. The reason most often given for the lack of this coverage was a mistaken belief that a general liability policy protects the officers’ and directors’ personal assets.
Please, if you are an officer or director of a company, call an agent who is experienced in these matters to discuss this important coverage.
Bruce Sackrison is an insurance property and casualty broker affiliated with Professional Insurance Associates helping clients with insurance needs for personal, commercial and business insurance. Bruce can be reached at 707-931-0186, firstname.lastname@example.org