Directors And Officers Liability Insurance

What Does Directors And Officers Liability Insurance Mean?

Directors and officers liability insurance (D&O) is a type of liability insurance that provides coverage for directors and officers in the event of legal actions brought against them. This insurance can pay either the directors and officers themselves or the company, and it typically protects against claims made by customers, competitors, regulators, or business partners. Unlike general liability insurance, which pays for bodily injury and property damage claims against the business itself, D&O responds when the people running the company are personally named in a lawsuit.

Insuranceopedia Explains Directors And Officers Liability Insurance

D&O insurance provides protection against management errors or omissions resulting from the decisions and policies of the insured. The coverage may include defense costs and expenses related to criminal, civil, or regulatory investigations. Companies often buy D&O alongside professional liability insurance, since the two cover different things. Professional liability responds to claims about the services a business delivered, while D&O responds to claims about how the business was run.

The nature of D&O claims varies based on the corporation or organization involved. Claims can be brought by shareholders after financial losses, creditors seeking compensation, unsatisfied customers, regulators enforcing compliance, or competitors alleging unfair trade practices. In such cases, D&O insurance offers financial protection to both the directors and officers and the company itself.

Typically, companies purchase D&O liability insurance to benefit their directors and officers. However, it does not cover illegal acts committed with intent. Larger corporations and nonprofit boards usually buy D&O as part of a broader business insurance package that also includes general liability and property coverage.