Most business insurance policies are designed to protect the assets and earning of the business entity. Directors and Officers Insurance, commonly called D&O Insurance, is a little different in that its purpose is to protect the personal assets and income of boards of directors and corporate officers.
A start up business has no need for this kind of insurance protection, but as your business grows through it’s life-cycle and becomes more complex; and as board members become wealthier, the need for D&O Insurance increases.
And it isn’t just corporation board members who need to consider D&O Insurance protection, sitting as a director on a co-op, condo, or non-profit board can also create exposure to personal liability for unintentionally failing to disclose conflicts of interest, breach of duty, or commingling personal and business monies and assets.
Not suit brought against a board or individual officer is covered in a D&O Insurance policy, and Directors and Officers Liability Insurance policies vary a great deal. Often claims related to employment practices (hiring, firing, and promoting) are not covered under D&O Insurance. In cases where a D&O policy excludes employment related claims, an Employment Practices Liability (EPL) policy may fill the gap.
A significant proportion of claims filed against boards and individual members are frivolous and are ultimately dismissed. But even though a case is thrown out, legal defense costs are usually incurred and can be significant. Coverage for legal defense costs is one of the most important components of a D&O Insurance policy.