Directors & Officers Liability Insurance
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Liability Insurance for Directors and Officers
In today’s business landscape, corporate directors and officers are expected to make business decisions and act in the best interests of the companies they serve. Sometimes, these decisions result in losses for shareholders or stakeholders, and these disgruntled parties can bring lawsuits claiming liability or wrongdoing, often naming the directors or officers personally.
Business managers may believe that they are protected by commercial general liability or umbrella insurance. However, this is seldom the case. Any individuals serving on a board of directors may be pursued personally for any actions a shareholder, client, or business partner believes they have committed.
Stay proactive and take the necessary steps to safeguard your reputation, financial stability, and professional future. Embrace a new level of protection that allows you to lead with confidence. Request a completely free, instant directors and officers liability insurance quote.
What Is Directors and Officers Liability Insurance?
Basic risk management as a professional isn’t always enough. In many instances, businesses that have their own board with members serving on it need more protection. Directors and officers liability insurance covers directors and officers, including trustees, volunteers, employees, and committee members, for personal liability that may arise from actual or alleged negligence, mistakes, misstatements, or breach of duty.
Why Purchase D&O Insurance?
When stepping into a leadership role, it is important to ensure your personal assets are protected. D&O liability insurance protects you, as a director or officer, if a supplier, customer, or investor brings a lawsuit against you personally claiming management wrongdoing on your part.
By protecting yourself with D&O insurance, you may be covered for legal fees, settlements, and other associated costs of the lawsuit, up to policy limits. These costs can often reach hundreds of thousands of dollars, especially since legal consultations for nonprofit attorneys can cost $200-$400/hour.
How Does Directors and Officers Liability Insurance Work?
D&O liability insurance policies are structured according to which combination of insurance clauses make up the policy, and they include the following:
- Side A – Side A refers to the section of a D&O contract that provides protection for directors and officers when the company is unable or unwilling to indemnify them. It is also known as the “personal security” portion of D&O insurance contracts, as it protects the officer’s personal assets.This is the part of a D&O insurance policy that would be useful if a company goes bankrupt. This insurance policy should cover the first dollar, meaning that there should not be any self-insured retentions or deductibles.
- Side B – When indemnification is granted by the company, Side B coverage will cover the loss incurred by directors and officers. The policy will pay the company’s legal expenses in this instance. Side B coverage insures corporate assets.
- Side C – Side C of the D&O insurance policy, also known “entity coverage,” provides corporate coverage if the corporation is sued. Side C of D&O insurance policies provide private companies with much greater entity coverage than public companies. Public companies are not covered for securities claims.Similar to Side B, Side C is subject to self-insured retention or deductible. Combining Side B and Side C coverage is often called “balance sheet protection” in a company.
- Stand-Alone Side A – The stand-alone side A policy is a type of D&O policy that only provides Side A coverage. It provides greater coverage (with fewer exclusions) than the Side A policy usually found in combination ABC insurance. For this reason, this type of Side A policy is also called a “Difference-in-Condition” (DIC) policy.Many insurance companies will combine a stand-alone Side A policy with regular ABC policies in their insurance programs. Why both? Bankruptcy is the usual reason. Directors and officers who have just an ABC policy could find themselves without coverage if the company goes under.If you are unsure as to which coverage option is best for your business, then we highly advise contacting an expert from EasyCover to further discuss different policies and which one suits your needs best.
What Does Directors and Officers Liability Insurance Cover?
Directors and officers are responsible for ensuring that the organization they manage is managed with diligence.
These are their three basic duties:
- Duty of diligence (Duty to care): Be reasonable, act in good faith, and serve the best interests of the organization.
- Duty of loyalty: Put the interests of the organization above your own.
- Obligation of obedience: Act within the limits of applicable bylaws.
However, a director or officer could be held responsible for liabilities arising from their decisions, such as in the below cases:
- Inability to comply with a statute
If a statute requires directors to file reports or keep certain records, then the director could be held liable for an offense under the statute.
- Non-compliance by the organization with a statute
Directors may be held liable for monetary loss, wrongful termination, discrimination against employees, and failure to remedy environmental damage. Directors can be held personally responsible, and ignorance, resignation, or indemnity are not means of defense.
Find out what other situations can be covered in your policy by applying for a free D&O liability insurance quote!
The Cost of D&O Liability Insurance
D&O insurance costs vary depending on the business. However, you can expect to pay between $5,000 to $10,000 per year for $1,000,000 of coverage. For directors and officers insurance, premiums could be as low as $500 for low-risk companies.
Some of the factors that will impact your D&O liability insurance premiums are:
Business industry
The type of business you run will affect your risk level. The cost of D&O insurance will be cheaper if your business is not at high risk of filing a D&O insurance claim.
Your premium for directors and officers insurance will also be lower if you are running a small business. Due to increased risk of a lawsuit, high-stake companies, such as public corporations with many managers, will pay more each month for D&O insurance.
Employees
There are greater chances that a mistake will be made if you have more employees. Any member of your advisory committee or board could report an error or breach of their fiduciary duty, which can lead to a costly claim.
Experience
Your director’s liability insurance will cost less if you have more experience in your field. You can prove to insurers that you are competent at your job by being a well-respected professional with a good reputation in your industry.
Financial position and revenue
High revenues will usually increase your D&O liability insurance premium. Third parties (employees and investors) may request more compensation if the company’s revenue is stable. Insurance companies may lower your premium if you have a strong financial foundation, which means that your chances of going bankrupt are low.
History of business insurance claims
The D&O insurance quote will be influenced by your business history. Insurers will offer lower prices if you have a clean claims history. This shows that you are less likely to make a claim in the future. However, having multiple claims in the past can raise your premium because it indicates that you are likely to make more.
Frequently Asked Questions: D&O Insurance
When you serve on a board for a nonprofit organization, you assume responsibility to the organization’s members, partners, and other stakeholders. Unfortunately, with that responsibility comes exposure to accusations of wrongdoing.
While some may think a lack of profit-oriented shareholders means reduced legal risk, lawsuits against nonprofit leaders are increasing dramatically. By securing nonprofit D&O insurance to supplement your professional liability insurance, you can protect your individual assets and reputation.
D&O policies do not typically cover criminal, fraudulent, and intentional non-compliance acts. D&O insurance does not cover bodily injury or property damage. That is the job of a commercial general liability insurance policy.
Directors and officers insurance is not available to sole traders and partnerships. This is because they do not employ the same level of executive staff as corporates. D&O insurance is recommended for any corporate structure that employs executive staff.
Get Protected With EasyCover
As one of the first online professional liability insurance portals in Canada, EasyCover makes protecting your assets and reputation easier than ever.
Using our convenient online platform, you’ll be able to:
- Get free, instant quotes on Professional Liability and D&O insurance
- Apply for, pay for, and print your policy in minutes
- Chat with claims specialists online for free
- Secure comprehensive coverage at competitive rates
Start protecting your most valuable assets today. Get your free, instant quote now.
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