Explaining the D&O Insurance: The Recommended Policy for Companies

You may start the most successful business ever, and make the right investments that help pave the road to success, but that still doesn’t guarantee risk-free days. However, unless insurance is part of those investments too, with either of the companies, fail-proofing in the long run may not happen. Hence the importance to include the right insurance policies among your top priorities, regardless of the size of your company.

Having the right policy offers the needed protection against legal actions that may run you out of business. That said, there are many policies designed to protect businesses depending on their line of work. But what most companies need, regardless of their primary business, proper directors and officers liability insurance. It’s basically coverage created for management, be it directors or officers of a public or private business, as well as non-profit organisations.

Protecting the Backbone of the Company

The directors and officers liability insurance is created to provide protection for their assets, plus their spouses, in cases of allegations and lawsuits initiated by customers, vendors, competitors, shareholders, investors, beneficiaries, or even employees. If you think about it, lawsuits against management have become quite common and depending on how mild or severe the cases of actual or allegedly committed wrongful acts are, the costs that arise from them could be really high.

Add to this possible disqualifications, imprisonment, as well as loss of reputation, and you get something that should scare you into acquiring adequate insurance instantly. Also known as d & o insurance, it’s managed to stay rather undervalued when compared with the rest of the policies, that is until major company scandals arise.

Instead of overlooking it, have in mind it can be just what you and your company need to get the peace of mind with the law, and your responsibilities and obligations – no matter how big or small they may be, and the risks that result from them.

What Does a Directors & Officers Policy Cover?

A company that has a corporate board is the right candidate for this kind of protection, as is one that’s got an advisory committee because of facing all the litigation risks and fines. Now, if you’re interested in such a solution, but wonder what exactly it offers, have in mind it covers:

• investigation costs
• prosecution costs
• defence costs
• court attendance costs
• damages, judgements, settlements
• adverse costs orders
• extradition costs
• public relations expenses
• bail bond expenses
• deprivation of assets

Some of the reasons why a company may need such coverage are:

• non-compliance with the laws of the workplace
• breaching the fiduciary duties
• misrepresentation or misuse of the company’s assets
• no corporate guidance

Exceptional cases which usually don’t get the coverage from the insurance policy are criminal activities such as fraud, and lawsuits in the company itself between entities of management.

What Types of Directors and Officers Liability Insurance Are There?

Depending on the cases, specifically, the inability to perform the directors and officers’ duties, and the types of the companies, there are three types of directors and officers liability insurance. They’re better known as Side A, Side B, and Side C.

Side A

If directors and officers aren’t indemnified by the corporation, they ought to get protection from the Side A liability insurance d&o policy. This could be either because the company is bankrupt, or because they aren’t willing to cover the claims so it’s the personal assets of the directors and officers that are at risk.

Side B

Now, if the directors and officers are indemnified by the corporation, this type of insurance is in favour of the corporation. This is so because in this case, it’s the company’s assets that are at risk, so the policy provides reimbursement for the company’s legal costs.

Side C

This type is also called the “entity coverage” since it encompasses the coverage of the corporate entity. While it offers more protection for the private and non-profit companies, with the public companies it’s only meant for the securities claims.

Wondering which one is most suitable for you? It’s recommended to get in touch with an experienced insurance broker, from a trustworthy insurance company, to get the needed pieces of advice on the exact coverage that works best for you.

The annual costs of the reliable directors and officers liability insurance will depend on the specific risks, the industry and size of the company, as well as history of claims, and revenue. The broker would help you assess whether you’d most benefit from a duty to defend or duty to indemnify policy.

Some companies benefit from several types of coverage, others benefit from a single one, so the level of protection is individual. What’s shared is the fact companies require this kind of protection considering it’s crucial for earning the trust of partners, employees, customers, and shareholders.

Even if you haven’t yet been through a lawsuit of the sort, and your business is family-owned, it’s still essential to think of the future and protect your assets from risks and damaging suits!