What is directors and officers insurance?
- Directors and officers insurance
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), a type of 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 insurance policy 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.
Learn more about directors and officers insurance coverage.
What does D&O insurance cover?
D&O insurance protects board members from lawsuits related to:
- Mismanaged funds
- Employee grievances
- 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 can help pay the cost of hiring an attorney, judgments, settlements, and other expenses related to the lawsuit.
Does directors and officers insurance protect against lawsuits related to the coronavirus (COVID-19)?
Most business insurance policies exclude communicable disease coverage. However, D&O can protect your business against allegations of mismanagement – including in relation to COVID-19. If an employee or outside party claims your board of directors did not respond appropriately to the coronavirus, directors and officers insurance will likely cover the related legal costs. Read more about business insurance and the coronavirus.
Small businesses often bundle D&O with EPLI for a discount
Small business owners often choose to bundle D&O insurance 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.
How much does D&O insurance cost?
Factors that impact the cost of directors and officers insurance include:
- Number of directors on the board
- Number of employees
- Geographic footprint
- Company finances
- Potential for initial public offering
- Risk profile
- Deductible amount
- Past claim history