Directors and officers (D&O) liability insurance protects corporate officers and directors from claims alleging they performed their duties improperly and is a type of errors and omissions insurance.   Lawsuits can be filed by shareholders, regulators, state investigators, or other third parties and this coverage is designed to cover claims based on financial injuries.

The standard Directors’ and officers’ policy provides three types of coverage.

Side A – Directors and Officers Liability Covers damages and expenses assessed against a director or officer who has not been indemnified for these costs by the corporation It protects directors’ and officers’ personal assets. A company may be unable to provide indemnification because it is bankrupt, or they are barred from indemnifying a director or officer by law. States generally prohibit indemnification of directors or officers who are in a suit filed by shareholders on the company’s behalf against directors or officers.

Side B – Corporate Reimbursement (Indemnification) is defined as protection from damage, injury, financial loss or legal liability.  In this case, Side B – Indemnification reimburses the corporation for funds it has paid to directors or officers or on their behalf, as compensation.

Side C – Entity Securities Coverage (Corporate Liability) Covers claims or suits filed directly against the corporation as a result of an offer, sale or purchase of its securities.  The scope of this coverage varies depending on whether the insured company is a private, public or non-profit corporation.

Management liability is a type of D&O policy for small and medium business.   It is structured as a package-policy and contains a range of broad coverages to protect a business and its managers from several types of claims.

The Management Liability Policy is a very cost effective. In addition to traditional directors’ and officers’ liability and corporate reimbursement insuring agreements, the following can be included in the policy:

• Corporate liability: coverage for claims made against the entity
• Employment practices liability: entity coverage for employment-related claims
• Superannuation(pension) trustee liability: entity coverage for claims arising from the management of retirement, pension fund or 401k schemes
• Crime: coverage for crime committed against the entity, such as fraud and misappropriation of funds
• Statutory liability: entity coverage for monetary penalties and possibly fines, resulting from breaches in legislation
• Taxation investigation: coverage for investigations undertaken by taxation authorities such as the IRS.

D&O policies are written on a claims-made form.

For more information on claims-made-coverages click HERE