Directors and officers insurance

Every nonprofit corporation must have a board of directors, and D&O insurance protects them in the event of a lawsuit related to their decisions.

For example, board members remove the female CEO of a charitable organization who has helped double the business’s revenue during her tenure. She sues the company’s board for gender discrimination and wrongful termination.

This policy could cover the board's legal costs and any resulting judgment or settlement.

Tech companies with a board of directors should consider D&O insurance to protect their members and officers, and to attract individuals with expertise. It can cover costs related to violations of bylaws, among other risks.

For example, a board member at a large public mobile app business violates the non-compete clause in the company’s bylaws by acting as a consultant to a competitor. The board member’s advice enables the competitor to launch a new iPhone app and triple its market share, causing the public company’s stock price to drop significantly.

Shareholders lose millions of dollars and file a lawsuit against the company’s board, which is covered by D&O insurance.

Directors and officers liability insurance provides important protection for consulting businesses, who may rely on their boards to make important decisions about acquisitions and other major moves.

For example, a marketing consulting firm acquires a smaller competitor and eventually loses millions of dollars because of the deal. It is later revealed that the board members who approved the transaction did not request important financial information on the acquired company, an oversight that results in a lawsuit.

Real estate boards of directors also benefit from the protection afforded by a D&O policy.

For example, several influential board members at a real estate brokerage suggest a print ad campaign featuring misleading market share statistics about a competitor and are later sued for libel.

The added liability of HIPAA makes D&O insurance a must-have for healthcare facilities whose board of directors helps make important business decisions.

For example, a data breach at a medical office exposes thousands of patients’ confidential information. It's later discovered that the organization was not in full compliance with the HIPAA security rule, and patients sue the board for negligence.

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 can help pay the cost of hiring an attorney, judgments, settlements, and other expenses related to the lawsuit.

Small business owners often choose to bundle D&O liability coverage with employment practices liability insurance (EPLI), another type of management liability insurance.

EPLI can cover your legal costs if an employee sues your business over unfair hiring practices or another violation of employee rights. A management liability insurance bundle usually costs less than purchasing the policies separately.

D&O insurance is a type of management liability insurance and can often be bundled with similar coverages. These policies protect the decision-makers at your business and can help attract top talent to your company, as they may look for this protection in place.

Keep in mind that D&O only covers risks related to decisions made by your board members and officers. You'll want to consider other types of management liability insurance to protect your managers and other employees at your business.

A D&O insurance policy consists of three main agreements between the policyholder and the insurer:

Side A: Side A coverage protects individual directors and officers who would otherwise have personal liability in the event of a lawsuit. It pays them back for their out-of-pocket expenses.

Side B: When a business indemnifies its directors and officers, the business agrees to pay their legal costs and receive reimbursement from the insurer.

Side C: This coverage is also called entity coverage. It covers securities claims only for publicly traded companies, with broader coverage for private companies and not-for-profit companies.

Check with an agent to make sure you get the right coverage for your business.