Do You Need Directors And Officers Insurance?


Aug 31, 2020

We explain why do you need Directors & Officers Insurance.

Directors and Officers Insurance offers liability coverage for board members and managers to protect them from claims which may arise from the decisions and actions taken within the scope of their regular duties. While it is not a mandatory coverage to have, many businesses find that partners and investors may look for or even require this insurance. This is why D&O Insurance can often become a consideration for businesses as they grow. Here's some more information on how does Directors and Officers Insurance work to help you answer, "Do you need D&O Insurance?"

What Is Directors & Officers Insurance (D&O)?

Companies purchase D&O Insurance because simply put, directors, officers and managers can make mistakes too! D&O Insurance includes financial protection for managers against the consequences of actual or alleged “wrongful acts.” Policies usually cover the personal liability of company directors but also, the reimbursement of the insured company if it has paid the claim of a third party on behalf of its managers in order to protect them.

Coverage is usually for current, future and past directors and officers of a company and its subsidiaries. D&O insurance grants coverage on a claims-made basis. This means that claims are only covered if they are made while the policy is in effect or within a contractually agreed extended reporting period.

What Does Directors & Officers Insurance (D&O) Cover?

As previously mentioned, D&O Insurance covers claims resulting from managerial decisions that have adverse consequences.

Here are some common risk scenarios:

  • Failure to comply with regulation or laws

  • Reporting errors

  • Misrepresentation of information

What Does Directors & Officers Insurance (D&O) Not Cover?

Some common exclusions for D&O Insurance include:

  • Fraud

  • Intentional non-compliant acts

  • Property damage

  • Cases where directors obtained illegal remuneration or acted for personal profit

When Do You Need Directors & Officers Insurance (D&O)?

Here are some common claim examples to explain when D&O Insurance can help provide financial coverage:

The executive director of a tech company was terminated due to unauthorized spending of the company’s funds. The director sued the company for wrongful termination and ultimately won; the case settled for $100,000. The company's D&O Insurance was able to help with this payment.

A manager of a townhouse corporation brings on a contractor to help build the bathrooms. The corporation pays the contractor the full cost of the job before they complete the work. The contractor then files for bankruptcy before the job is finished. It is then brought to surface that the manager already had a personal relationship with the contractor prior to the contract. The townhouse owners sue the manager for $200,000, the amount of the contract, arguing there was a mismanagement of funds.

A restaurant franchise hires a printer to create promotional items to spread the news about the grand opening of a new location. Both parties sign a contract clearly stating when the items would be delivered but the printer misses the deadline and provides the finished products a week late. This set back causes numerous delays and issues with the grand opening for the restaurant; the owner sues the printing company for breach of contract and a loss in revenue.

At Foxquilt, we believe in supporting your business every step of the way of your insurance process and as your business grows! For many businesses, Directors and Officers Insurance needs to become a consideration in their protection plan as they grow. Our team of professionals are happy to review your business and provide a customized insurance solution around your specific needs. By joining the Foxquilt community, you can even access exclusive discounts on your tailored insurance coverage! Get started today.

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