As an officer or director at your organization, you encounter a myriad of employment-related exposures. Sarbanes-Oxley regulatory mandates and increased shareholder activism mean directors are at risk for claims and elevated settlement costs.
The legal cost to defend a director is substantial, as are the potential penalties that can be personally incurred. Due to the personal liability risk – which is not covered under a personal insurance policy – protecting boardroom talent can be a challenge. A directors’ and officers’ liability insurance (D&O) policy is part of a comprehensive risk financing strategy.
Unlike a commercial general liability policy that provides coverage for claims arising from property damage and bodily injury, a D&O policy specifically provides coverage for a “wrongful act,” such as an actual or alleged error, omission, misleading statement, neglect or breach of duty. A D&O policy provides defense costs and indemnity coverage to the entity listed on the policy declarations, which may include:
Indemnification provisions are typically included in the charter/bylaws of a corporation. While an important risk component, small to midsize privately held companies or nonprofit organizations often do not have the financial resources to fund the indemnity provisions, making the bylaws hollow. A D&O policy can provide an extra blanket of security in the event of a covered loss.