6 Things you must know about Directors and Officers Insurance
1. What is Directors and Officers Insurance?
Directors and Officers (D&O) Insurance is designed to provide financial protection for the directors and officers of your company in the event they suffer such losses as a result of a lawsuit for alleged wrongful acts while acting in their capacity as directors and officers for the organization.
2. Who needs Directors and Officers Insurance?
You need D&O Liability when you assemble a board of directors. They will frequently make the requirement.
Investors, especially Venture Capitalists, will also usually require that you show evidence of Directors & Officers Liability insurance as part of the conditions of funding your company.
Also having employees opens management up to employment practices lawsuits – which usually can be covered under D & O insurance.
3. Why should you take out Directors and Officers Insurance?
You need Directors & Officers Insurance because claims from stockholders, employees, and clients may be made against the company, and against the directors of the company. Since a director can be held personally responsible for acts of the company, most directors and officers will demand to be protected rather than put their personal assets at stake. Investors and members of your board of directors will also nt be willing to risk their personal assets to serve as a corporate director/officer.
Also note: The risk of litigation can stem from shareholders should they feel that share prices have dropped due to the negligence of a director or officer or because they purchased the shares based on public statements made by directors or officers as to the company’s financial position which may impact the decision to purchase shares.
4. How much does Directors and Officers Insurance cost?
This is a specialised policy and we have a large book of clients with many different insurance companies, so we will be able to find the most beneficial policy with the cheapest premiums for your business.
5. Typical claims incurred on Directors and Officers Insurance policies
Employment practices suits constitute the single largest area of claim activity under D&O policies.Over 50% of D&O claims are employment practices related.
6. What other insurance should be considered along with Directors and Officers Insurance?
A common misperception of D&O insurance is that it makes directors or officers able to engage in acts they know to be wrong; this is not the case. Intentionally illegal acts or any illegal gains/profits obtained by directors/officers are not covered in D&O insurance. Make sure you are covered completely by looking at Business Insurance, Fund Managers Insurance, Fidelity Guarantee, Blanket Bond Insurance.