Large or established businesses often have top level management and policies guided by a board of directors. But boards exist all around us and not just in a corporate setting. In each case, individual board members can be held liable for their actions or the actions of the board of directors and subject to lawsuits.
Most business insurance policies are designed to protect the assets and earnings 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.
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.
D&O Insurance Helps Protect Corporate Board Members
Directors and Officers Liability Insurance policies vary a great deal but all of these policies will provide a wide range of insurance protection against legal actions. However, not all lawsuits are covered under a D&O insurance policy. For instance, 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.
For these and other reasons a D&O insurance policy isn't something that should be purchased in isolation but should be considered in coordination with a businesses' (or homeowner board's, etc.) total insurance program.
It's worth noting that 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. Because of this, coverage for legal defense costs is one of the most important components of a D&O Insurance policy.
For any business insurance questions, call or contact Executive Insurance & Financial Services today.