Directors and Officers insurance provides protection for board members and the organization they serve from lawsuits filed against a board member. But what about when that director or officer is gone? Does D&O insurance still cover them?
In short, yes. While the D&O policy is in place, current, former and future employees are covered. D&O policies are often claims made policies, which means they provide coverage only if the claim is made while the policy is active. Even after a director leaves the board, a lawsuit concerning their actions while on the board is covered under D&O insurance. Directors should speak with their employers about which type of policy they carry. An occurrence policy only provides coverage if the accident occurs while the policy is active. If the incident occurs outside of the policy period with an occurrence policy, you may not be covered.
D&O insurance also doesn’t cover everything. Whether the employee is currently employed or not, a D&O insurance policy won’t cover:
- Bodily injury
- Property damage
- Personal profiting
- Pending litigation
- Other illegal acts
D&O insurance does cover:
- Stock performance lawsuits
- Employment practices
- Cyber liability
- Not complying with laws and regulations
Directors should always ask about their board’s D&O coverage. Some incidents may leave them—and the board—unprotected, such as a change in regulations or a lapse in D&O insurance. In these cases, it’s useful for former directors to carry their own liability insurance.
What are the Different Types of D&O Insurance?
There are three sides to D&O insurance.
- Side A protects the directors and officers
- Side B protects the company and reimburses the company for legal expenses they may use to protect directors and officers
- Side C protects both directors, officers and the company if named as co-defendants in a lawsuit.
There are other times where D&O insurance may lapse or cause gaps. If the company is acquired by another, there could be a gap in coverage. This is where a D&O insurance tail policy comes in handy. If a lawsuit occurs after the company is acquired for actions taken before the acquisition, a tail insurance policy may help. This policy extends for a certain period past the expiration date of the original D&O policy. Acquiring companies will likely encourage the selling company to carry a tail insurance policy or otherwise refuse to acquire. Inspect your D&O policy carefully to make sure it has the right coverage.
Also Read: D&O Insurance is not General Liability Coverage