Directors and officers insurance (D&O insurance) is designed to cover key members of your business in case of a personal lawsuit. A single policy is generally geared to cover every director and officer that is key to the business as specified by the employer. This can mean directors, officers, senior managers, secretaries and more. Anyone who is in a supervising position may (and should) be covered under D&O insurance.
Choosing the Right D&O Insurance Limits for Your Business
Since most policies cover all of your key employees, it is important to choose the right coverage amounts. The more key employees you have, the higher coverage limits you will need. For example, say your policy has a limit for the year. There are unfortunately two expensive lawsuits that year against your D&O insurance policy that reach the limit of your year’s coverage. This means that there is no coverage left for other directors or officers who may be sued in the same year.
This may be fixed with proper coverage limits and certain expansions of your policy. Some insurers offer additional coverage to automatically cover all acquisitions and provide 100% coverage of defense costs for covered claims.
Different Types of D&O Insurance Coverage
There are three types of D&O insurance coverage, labeled as the policy’s “sides.” The three sides are:
- A: A-side coverage provides compensation for officers and directors in case the business cannot indemnify them for a D&O lawsuit, including expenses for court fees, defense costs and settlement costs.
- B: When a business does indemnify an officer or employee for the legal fees related to a D&O lawsuit, B-side coverage compensates the business for the expenses.
- C: C-side coverage, or entity coverage, protects the company in case of a direct lawsuit.
Does Your Business Need D&O Insurance?
Every business is different, as are their insurance needs. However, even small businesses may need D&O insurance. Whether you have two senior managers or 50, an expensive lawsuit can land your business in troubled waters if you don’t have a safety net. D&O insurance can protect your business (and its important directors and officers) in case of a lawsuit regarding misuse of company funds, failure to comply with workplace regulations, breach of fiduciary duty, and employment practices liability (EPLI) issues such as sexual harassment and discrimination.
Speak with an insurance agent today about finding the right D&O insurance policy for your business.
Also Read: Does D&O Insurance Cover Former Employees?