Directors & Officers Insurance
We hear much lamenting about “these days”, but let’s not miss the positive trends afoot. People are donating their time and energy to boards and non-profit organizations. People are more aware of their responsibility to be “part of the solution”. And those in decision-making roles, both in non- and for-profit organizations, are being held more accountable for their actions.
Directors and Officers Liability Insurance or D&O Insurance is a liability insurance that will protect directors and officers of a company, non-profit, or the corporation itself, to cover damages or defense costs in the event they are sued for wrongful acts related to their corporate positions. That means activities only associated with their position as a director or officer. Typical sources of claims include shareholders, shareholder-derivative actions, customers, regulators, and competitors (for anti-trust or unfair trade practice allegations).
D&O insurance is usually purchased by the company or non-profit itself, even when it is for the sole benefit of directors and officers. Reasons for doing so are many; one being that it assists a company in attracting and retaining directors. In many corporations, it is often required by law, particularly state law, to indemnify directors and officers in order to encourage people to take the positions. However, the policies have exclusions and must be read carefully. And not all companies carry it. For instance, a small corporation or organization may not carry D&O insurance if it is financially unable and does not feel a serious risk is there.
So, does all this protection mean directors and officer feel freer to “bend the rules” a bit? They shouldn’t. Intentional acts are not covered in D&O insurance, only negligence by directors or officers. Deliberate funny stuff not allowed.
Do you volunteer on a board, or serve as an officer of an organization? It is important to ask leadership if a D&O policy is in place. This not only affects you in the event of a claim, but <b>could affect your family and your personal assets</b>.
If you or someone you know is a director or officer, please have them consult their insurance professional and discuss their exposure to potential loss. Not because of their possible failings, but because integrity is becoming a higher value to everyone.