Directors and Officers (D&O) insurance policies is a lesser-known, yet crucially important policy in the insurance world.
So what is a D&O policy do for a company? It’s meant to help cover company directors and officers from claims based on decisions they made during their regular course of duty with a company.
“What’s included in a D&O policy?”
The reasons to purchase a policy of this type are varied and need to be understood by potential purchasers. Who and what is covered is an important aspect of this decision, and the needs of every company are not the same. While some policies are standardized, many others are customized to handle the unique needs of individual companies.
“Does my small business need D&O coverage?”
These policies cover not only the personal liability of company directors and officers but also the insured company in the event of a payment to a third party on behalf of managers. That coverage comes in the form of reimbursement for funds paid out. For companies listed as stock companies, coverage can also be purchased for claims stemming from accusations of wrongful acts in connections with securities trading. D&O insurance coverage, however, is not limited to large companies.
While it is essential for large multinational companies to carry this type of insurance, smaller companies are also at risk for the same liabilities. Small and medium-sized companies are showing an increased demand for D&O coverage – and with good reason.
While D&O insurance provides financial protection to directors and officers for alleged “wrongful acts” or actual issues arising from the scope of their normal duties, there are a number of things which are not going to be covered. Most of them are obvious; some of them are not.
The most common exclusions to D&O policies include the following:
-Noncompliant acts done intentionally
-Legal action already underway at the start of the policy
-Claims made under a previous policy or covered by other insurance
“Who and what is covered in an important aspect of this decision, and the needs of every company are not the same.”
To put it in plain terms, the things the are not covered by D&O insurance are usually the result of fraud or criminal acts.
The reasons to have a D&O policy are numerous, and the most glaring and important is that directors and officers are human. They will make mistakes. And when they do so in the course of their work, they can be held personally liable for those mistakes. This impedes their ability to be efficient at their job because they are forced to make choices which could impact not only company they’re working for, but also their financial well-being.
The increasing complexity of modern business usually necessitates the involvement of experts in the area of insurance to ensure all liabilities are covered. After all, this is a time when a small, two-person shop can be a retail supplier on an international size thanks to the wonders of e-commerce. When the stakes are high, it’s better to be safe than sorry.