Directors & Officers (D&O) Insurance – Must Have in 2022
If you are on the board of any company, it’s a risk NOT to cover yourself. As lawsuits continued to be filed against directors and officers, individuals in these positions could be held personally liable. The good news? D&O Insurance.
D&O Insurance is specifically designed to protect those who serve as directors and officers of a company from personal loss if they were to be sued by the organization’s employees, vendors, customers or other entities. The policy can also protect these individuals’ spouses, assets and estates, as well as the company’s assets.
Getting the right D&O insurance policy can be challenging, as they are highly negotiated. We’re here to walk you through general terms to be aware of in D&O policies, so you have a better understanding of how they are structured.
Three Sides to Every D&O Policy: Side A, Side B, and Side C
D&O insurance is divided into three agreements, all of which share the same policy limit.
Side A: The section of D&O policy that is typically seen in bankruptcy cases and covers directors when the company cannot cover legal defense due to insolvency.
Side B: The section of the policy that responds most commonly in a majority of claims against directors and officers. It is the part of the policy that will reimburse the company for its indemnification obligation to its directors and officers.
Side C: Known as “entity coverage,” this is the part of the policy that will protect the company if there is mention of its name in the lawsuit as well. For public companies, it only responds to securities claims. For private companies, there is broader coverage.
The Cost
The cost of each policy depends on different factors including your past legal history, company debt, assets, revenue and the industry of your company. It’s also important to note that there might be additional exclusions not covered, such as lawsuits between directors and officers of the same company.
The bottom line is it’s important to secure coverage before a lawsuit rather than try to recover financially after.
Learn more about D&O insurance here.
