Directors and officers insurance protects board members and officers against legal expenses if they are sued for a decision they made on behalf of the company that led to a financial loss.
When does a small business need directors and officers insurance?
Any company or nonprofit organization that has a board of directors should consider directors and officers insurance (D&O), also called management liability insurance. D&O protects board members from lawsuits over decisions they make while serving on your board. If they're sued, they could have to pay thousands of dollars in legal costs.
Securing this coverage protects your board members and the officers they elect or appoint. It helps your small business attract and retain top talent since they know they'll be protected. Most board members will expect your business to carry this policy.
D&O insurance protects board members from lawsuits related to:
Slander, libel, and copyright infringement claims
Failure to follow organizational bylaws
Failure to comply with regulations
How does directors and officers insurance protect board members?
Your board members and officers face many of the same risks as your business: lawsuits over hiring and firing decisions, trademark issues, and mismanagement of funds. Unlike your business, they are not protected by general liability or professional liability policies. If they're sued, D&O insurance will help pay the cost of hiring an attorney, judgments, settlements, and other expenses related to the lawsuit.
How much does D&O insurance cost?
Factors that impact the cost of directors and officers insurance include: