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What is It?
Directors' and Officers' Liability (D&O) insurance is a specialized form of professional liability coverage for legal expenses and liability to shareholders, bondholders, creditors or others due to actions or omissions by a director or officer of a corporation or nonprofit organization.
Overview
Directors and officers are not liable for an honest mistake of business judgment made with reasonable prudence or care that results in a financial loss; but officers and directors can be held personally liable for actions or omissions made with negligence, recklessness, or bad faith. Directors and officers have a duty to exercise due diligence in overseeing the activities of the organization that they serve. They are required to act in good faith and in the best interest of the organization.
As the complexities of the legal and business environments in which we operate continually increase, directors' and officers' conduct have come under increasing judicial and regulatory scrutiny.
The risk of exposing personal assets of directors and officers can be reduced if effective corporate governance is combined with a risk management program .Although there is no single solution for protecting directors and officers from liability, Directors’ and Officers’ (D&O) Liability insurance is an important tool in mitigating an organizations' overall exposure.
Most policies have two parts: coverage A provides direct reimbursement to the directors and officers for third-party claims; coverage B reimburses the corporation if it is required or permitted, under law or the corporate charter, or by-laws, to indemnify the directors and officers. Coverage is on a claims-made basis. -
The number of claims made against directors and officers is increasing exponentially, and overall the current major areas of liability, based on our experience, are the following:
Bankruptcy-related claims
Employment-related claims
Economic torts
Breach of fiduciary duty
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