What does directors & officers liability insurance cover?
As with any insurance policy, directors & officers liability insurance policies can range in coverage based on discussed options with a qualified insurance agent. A directors & officers liability insurance policy may cover legal expenses if executives are directly sued.
A group of specific officers or all officers
A directors and officers liability insurance policy can be customized to protect a specific group of officers within a business or all officers and directors. This difference should be a requirement that is identified when working with your insurance agent.
An investment that ends up costing a company millions of dollars in lost revenue can easily become the subject of a lawsuit. If an officer is sued due to an investment of company funds that turns out badly, directors & officers liability insurance can cover lawsuit costs and protect that officer’s personal assets.
If a worker names an officer or board member in an employment-related lawsuit, a directors & officers liability insurance policy may cover lawsuit costs to protect their personal assets. These cases can involve discrimination, breach of contract, slander, and more.
A third-party can sue your officers for libel or slander. A directors & officers liability insurance policy can help cover legal expenses that those executives face. Defamation lawsuits can come from any associated third-party, but commonly start with competitors, customers, or other investors.
When a bylaw is overstepped or directly violated, company stakeholders may feel strongly enough to sue. Some bylaws can include clauses like board member election policies, stock issuance, director indemnification, conflict of interest, and voting requirements. If a company stakeholder feels one of these, or other stated bylaw, has been violated, a directors and officers liability insurance policy can protect personal assets of the accused.
Every industry has a different set of regulations they must abide by. In the event an officer does not uphold these standards they can be sued. Guidelines can range from data protection practices like the Health Insurance Portability and Accountability Act (HIPAA) or Payment Card Industry standards (PCI), to physical safety like Occupational Safety and Health Administration standards (OSHA).
What does directors & officers liability insurance NOT cover?
Directors & officers liability insurance will only cover legal expenses related to the management team listed within the policy details unless a whole business policy is purchased. Some scenarios where D&O will not cover expenses are: illegal actions, work-related injuries, customer injuries, errors and omissions, or property damage.
Most illegal actions that result in a criminal investigation against an executive will not be covered by directors & officers liability insurance. Criminal acts like securities fraud, money laundering, embezzlement, and corporate fraud fall outside of typical policy coverage.
Executive or board member injuries
If an executive or board member injures themselves during the course of work, directors & officers liability insurance will not cover their medical expenses. These will typically be covered by a workers’ compensation insurance policy, which is required in most states for businesses with at least one employee.
A general liability insurance policy can help cover medical and legal expenses if a customer is injured while interacting with your business.
Errors and omissions
In case your business is accused of professional negligence like incomplete or inadequate work, you will require a professional liability insurance policy for coverage.
Property damage is not covered under D&O liability insurance. Property damage that occurs to business-owned property is covered under commercial property insurance and third-party property damage is covered under general liability insurance.