What is D&O Insurance?

D&O InsuranceDirectors and Officers Liability Insurance is often referred to as D&O Insurance and is one segment of Management Liability Insurance. It provides coverage for the directors, officers, and owners and managers of a business for the liability they may incur for their “wrongful acts” while carrying out their duties.  Because owners, directors and officers of a business assume the liability of their positions personally, and may not be protected by “the shield of the corporation” so there’s a lot at stake, making Directors and Officers Liability Insurance a business necessity. While this coverage is often purchased by large public companies, it is an important coverage part for privately held businesses, non-profit organizations, and even family held businesses. In fact, many talented business leaders will not consider joining a company or organization, or sit on their board of directors unless Directors and Officers Liability Insurance is in place!

The coverage grant and policy design of a D&O insurance policy is unique as it covers the past, present and future directors and officers, and the entity, for allegations of wrongful acts. A wrongful act is mismanagement; in a basic sense the failure to act prudently, with the best interests of the company, its owners and stakeholders in mind. Claims can be brought by stockholders, employees, regulators, competitors, and others alleging financial loss due to mismanagement.

D&O Insurance Policies Require Careful Structuring & Negotiation

Directors and Officers liability insurance policies are written on a Claims Made policy form with a variety of endorsements that can be expand or restrict coverage, so careful structuring and negotiation is critically important when arranging coverage. Side A, or Insuring Clause One provides coverage for the organization’s officers and directors when they are not indemnified by the corporation; due to intervening state law, bankruptcy, or the financial inability of the corporation to do so. Side B or Insuring Clause Two provides coverage for the corporation or organization as reimbursement for the dollars spent on indemnifying directors and officers. And Side C or Insuring Clause Three provides coverage for the entity itself for securities claims brought against it.

Due to the complexity of D&O litigation, many directors and officers of publicly held corporations as well as larger well known non-profits will often insist on what is known as  Dedicated Side-A Coverage or Side-A Difference in Conditions (DIC) insurance which provides broad protection and usually higher limits dedicated just for the entity’s Directors and Officers protection.

For more information on Directors and Officers Liability Insurance, or other types of business insurance in New York, please contact us by calling 845-634-3606.

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