What D&O covers

Directors and officers is a type of liability insurance that covers individuals for claims made against them while serving on a board of directors and/or as an officer. This type of policy can be written to cover directors and officers of for-profit businesses, privately held firms, not-for-profit organizations and educational institutions. There are several elements—called “Sides”—to a D&O policy, including:

• Side A—Protects a corporation’s directors and officers when the company cannot indemnify the individuals.
• Side B—Reimburses the organization when it indemnifies the individuals, thus protecting the company’s balance sheet
• Side C—Also known as “entity coverage,” this eliminates disputes of coverage allocation when both the directors and officers and the insured organization are named as co-defendants in a securities lawsuit.

A wide range of claims against a business have the potential to target company leadership for responsibility—and liability. Business leaders can be held responsible for a company’s failure to comply with regulations and to provide a safe and secure workplace. In addition, if a company is found liable for losses because of operational failures and mismanagement, directors and officers may be exposed to liability as well. The types of claims that may target company leadership individually as well as the company itself typically include:

• Shareholder suits over company or stock performance.
• Creditor or investor suits over mismanagement or dereliction of fiduciary duties.
• Misrepresentation in a prospectus.
• Decisions exceeding the authority granted to a company officer.
• Failure to comply with regulations or laws.
• Employment practices and HR issues.
• Pollution and other regulatory claims.
• Cyber liability.

What’s excluded?

Standard exclusions in a D&O policy typically include:

• Fraud.
• Personal profiting.
• Accounting of profits, and other illegal compensation exclusions.
• Pending and prior litigation.
• Prior (late) claim notice.
• Bodily injury/property damage.
• Insured versus insured claims.
• ERISA.

In addition to taking steps to reduce your risk of employee lawsuits, you can financially protect your business by purchasing employment practices liability insurance (EPLI). Employment practices liability is generally not covered by general liability insurance, but can be purchased as a stand-alone policy or added as an endorsement to a Business Owners Policy or Commercial Package Policy. Bear in mind that EPLI coverage may have more limits and exclusions as part of a package policy. EPLI covers companies against claims or lawsuits filed by employees, former employees and employment candidates regarding their employment relationship with an employer. This type of coverage protects the company, its directors, and officers, as well as current and former employees. EPLI policies may also cover seasonal employees, leased employees and independent contractors.