D&O

Directors & Officers Insurance

Directors and Officers have accountability to investors and shareholders.

This means personal asset exposure when expectations are not met. The company itself is also exposed.
If a shareholder sues your CFO and senior management for breach of fiduciary duties, a tailored directors and officers (D&O) liability product can help indemnify and protect the personal assets of the individuals leading your company. The right D&O product can give a high growth company’s management and board members the confidence to take strategic risks essential to supporting growth goals.

We wrote this guide to help you, the reader, understand both the basics of D&O insurance as well as some more advanced considerations. Our hope is that you walk away from this article a more empowered buyer, with a better understanding of the risk you can transfer to other parties via the D&O insurance product.

We’ve quickly become the leading digital D&O insurance broker for high growth businesses. If you’d like help, we’d invite you to talk with a broker or get started by creating an Embroker account.

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What Is D&O Insurance?
Directors and Officers Insurance (D&O) is liability insurance that covers the directors and officers of the company against lawsuits alleging a breach of fiduciary duty. A company pays for this coverage so executives can serve confidently as leaders of their organization without fear of personal financial loss.

In essence, D&O is a liability insurance policy, payable either to directors and officers of a company or the company itself. The policy will reimburse settlements or defense costs that result from covered claims.

Why Should You Have Directors and Officers Insurance?
In the event of a claim against directors and officers, the insurance carrier will help navigate the lawsuit, negotiate settlements, and cover expenses. Ultimately, this translates into significant time and money savings.

D&O insurance can also protect executives and board members in the unfortunate case of bankruptcy. The D&O policy will provide indemnification, acting as a buffer between the personal assets of the directors and officers and the legal costs spent defending litigation brought by creditors, trustees, or past investors.

Public and Private Companies
Both private and public companies secure D&O insurance to protect company leaders and the business.

Private and venture investors typically mandate that companies buy D&O insurance either before closing a round of financing or within some specified time after closing. A proper D&O policy will support the company leaders as well as the board.

There are material differences between D&O policies for private and public companies. The biggest difference is that public policies cover Securities Class Actions brought by investors. As such, D&O insurance for a public company will be more expensive, which makes complete sense because there are simply more stakeholders involved.

Nonprofits
When trying to run a successful nonprofit, the organization commonly pays more attention to the philanthropic cause than to the “business” side of things. It’s quite common to see nonprofits name directors and board members who might not have much experience occupying relevant leadership positions. Many will recruit their leaders based on how much passion they have for the cause, not based on their experience as nonprofit leaders.

A seasoned leadership team typically understands the value of D&O insurance, as it can offer protection to them personally from the nonprofit constituents alleged financial mismanagement – even if the leadership and board are acting with the best intentions.