Directors and Officers (D&O) insurance protects directors’ and officers’ serving on the board of an organization against personal liability. Allegations of wrongful acts can be bought against you by customers, employees, competitors, investors, and other stakeholders putting your finances and assets at risk. D&O insurance provides coverage that could otherwise cost hundreds of thousands of dollars and covers legal fees, settlement costs, and other damages that can stem from a lawsuit. We’ve looked at the top choices for coverage, financial stability, and overall quality.
Coverwallet began its journey in New York City in 2015 operating under the
Aon Insurance banner. At Coverwallet, you can access everything you need to
keep your company well-protected at an unbeatable price.
With a 100-year history of insuring businesses, Hiscox is well-known across
America and globally. With more than 500,000 small business customers,
Hiscox is fully aware and trained in the unique risks a business can face.
Thimble provides business insurance that can be tailored to your business by
the year, month, day, or even the job. At Thimble, the process to getting
the right business insurance is simple, scalable, and flexible.
D&O insurance provides coverage for lawsuits brought against leaders of an organization who serve as a director or an officer on the board. The insurance company can assist in the form of covering legal fees for defense, settlement costs, and protection of personal assets including assets belonging to a spouse.
Who needs Directors & Officers liability insurance?
Organizations looking to attract the best executive talent must have D&O liability insurance in place that gives leaders of the company the ability to make decisions without worrying about the legal repercussions and liability. With the right policy in place, directors and officers can settle lawsuits quickly and efficiently.
Any company, whether public, private, or non-profit faces the risk of litigation regardless of company size and legal structure.
Types of Directors & Officers insurance coverage
There are three types of agreements included in D&O policies. These are commonly known as:
Side A: Coverage includes claims where the organization is unable to pay for the costs of the lawsuit against directors and officers. This type of coverage may come into use during bankruptcy.
Side B: Coverage protects the company from legal costs when it has to pay for claims against its directors and officers. Also known as corporate reimbursement, it is the company’s assets that are at risk in this scenario.
Side C: This coverage is commonly referred to as entity coverage, and protects the company when there are lawsuits made against the company, as well as the directors and officers involved.
Many factors determine the type of coverage an organization will need to buy including how much coverage is needed to provide adequate protection to all stakeholders, the business model of the company, and the number of years in business.
How much does Directors & Officers insurance cost?Â
Several factors can impact the cost of D&O insurance. On average, you can expect to pay between $5,000 to $10,000 per $1,000,000 worth of liability coverage.
The cost of D&O insurance can depend on:
Company size: Smaller businesses are considered lower risk while large businesses are considered higher risk with a larger number of people serving on the board.
Industry: Certain industries will face a higher risk of claims than other industries and this will be accounted for in premiums.
Risk exposure: A publicly traded company is considered higher risk than a private company and this will impact the insurance premium.
Financial position: Higher levels of debt can be reflected in higher premiums.
Claims history: Your claims history will be taken into account by the insurer. The higher the number of claims in your history, the more likely your premiums will be increased.
Years of experience: Younger businesses and start-ups are likely to pay more than more established organizations with a stronger balance sheet and lower risk of bankruptcy.
Deductibles and liability coverage: Low deductibles and extended liability coverage will be reflected in higher premiums.
Professional backgrounds of directors and officers: Coverage for directors and officers with more years of experience will be taken into account when calculating premiums.
What does Directors & Officers insurance cover and exclude?
Coverage for D&O insurance will cover directors, officers, and the entity involved depending on the type of insurance purchased. Policies typically include:
Legal aid: The costs of legal defense fees and court fees. This can either be in the form of a payment upfront or a reimbursement of legal expenses.
Wrongdoings: These can include, large financial losses and bankruptcy, theft of propriety information, trade secrets and intellectual property, misrepresentation of information to investors and creditors, reporting errors on company assets, and wrongful acts.
Settlement amount: Damages awarded to the plaintiff.
As with any insurance policy, there are coverage limits. There are exclusions for fraud, criminal acts and financial crimes. It’s important that your directors and officers are made aware of the laws and regulations that apply to your industry and trade activities. Failing to meet notification requirements where the insurer is notified within the policy period. It’s important to be aware of the reporting periods and work with your insurer anytime there is the possibility of filing a claim.
Exclusions involving insured vs. insured where a former or current director or officer files a lawsuit against the company. This is to ensure that all claims and lawsuits are valid and legitimate.
What are the limits of Directors & Officers insurance?
Like all insurance policies, there will be limits to the coverage your policy will provide. The majority of settlements will offer a maximum coverage limit depending on the size of your company. All claims that are filed in a given year fall under the coverage limit.
It is important to carefully read the terms and conditions when purchasing your D&O insurance. It will indicate whether the business must hire its legal team to defend itself and be reimbursed for the costs as the insurance company deems reasonable or if the insurer is responsible for defending the company.
What to look for in Directors & Officers insurance?
Before you select an insurance plan, here is what to look for:
Bundling policies: D&O insurance can be purchased by bundling it with other business insurance policies which can lower your overall premium.Â
Specific details: D&O is unique to each company as no two companies are the same. It’s best to understand all the terms of the policy and negotiate any details upfront rather than debating it with an insurer during a claim.
