Corporate governance comes with high-level responsibilities. Though the law grants them much discretion, board directors are expected to uphold their duty to their shareholders and beneficiaries. In he event that they are sued as a result of performing their duties directors and officers benefit from directors and officers (D&O) liability insurance, a type of coverage protecting them from personal losses and potentially covering the organization’s legal fees. D&O insurance may protect directors when the organization cannot compensate them or may reimburse the organization for the costs it incurs in providing compensation. Entity coverage specifically covers the organization for claims made against it.

 

D&O insurance is used by many types of organizations, including public and private companies, nonprofits and educational institutions and other various entities with a board of directors or similar governance structure. If a director or officer is sued by an employee, vendor, customer or other party, D&O insurance covers numerous risks or potentially wrongful acts, such as allegations concerning mismanagement, fiduciary duty, decision-making, regulatory investigations, employment practices, inaccurate disclosures and securities violations. Nonetheless, claims related to fraud, criminal activity, bodily injury, property damage or contractual liabilities are not covered under D&O insurance.

 

Many insurance companies specialize in D&O insurance and organizations often purchase these policies to cover the entirety of the board. But, if an organization does not already cover its directors, they can purchase coverage themselves. Directors should evaluate the specific risks associated with their organization and duties, relevant laws and industry regulations and the present stage of their organization before considering the amount of coverage they may need and if D&O insurance could bolster their organization’s current coverage. D&O insurance is extremely useful in protecting the interests of directors and officers in high-level leadership roles by mitigating the risks associated with governance, especially in high-profile organizations.