Directors and Officers Insurance: Debunking the Myths

Companies often don’t believe they need the much-misunderstood commercial liability insurance product known as directors and officers liability insurance (D&O).

Acts leading to claims: This liability insurance provides protection from financial damages and covers legal defense expenses from claims relating to things like

  • mistakes
  • omissions
  • breaches of duty
  • misleading statements or misstatements
  • neglect

D&O insurance protects individual directors and officers of a company from financial damages due to actual or alleged wrongful acts committed while in these jobs. It covers past and present directors and officers, and sometimes employees. One common misconception is that D&O provides corporate leaders with blanket coverage, but in fact D&O doesn’t protect against negligence or illegal acts.

Who needs it? Publically traded companies should buy D&O insurance when a board of directors or an advisory committee is struck and/or when the company is looking for investors. In the latter case, investors will usually require D&O insurance as a condition for putting up funds. Non-profits and private companies should also consider D&O, depending on their business type. And small businesses also shouldn’t automatically dismiss it; there are many reasons managers, directors, and officers of even small companies may be sued.

Confused? Discuss it with your advisor.