Do You Know D&O? Directors and Officers Liability Insurance

D&O is the common abbreviation for Directors' and Officers' Liability Insurance. This is a type of liability insurance that protects Illinois directors and officers of an organization by covering damages or defense costs in the event that they are sued for alleged wrongful acts while serving as directors and officers for the organization.

D&O Defined

Simply defined, D&O insurance insures the decisions of directors and officers, becausethough they typically have the best of intentionsit is their decisions that often lead to claims. Unfortunately, some decisions don't seem correct to everyone; consequently, there may be a lawsuit against the directors and officers who made the decision. This puts these individuals in a very vulnerable place, financially as well as professionally.

D&O insurance may most often be associated with prominent, publicly held companies, and often it is customers and shareholders who initiate the lawsuits and file claims against directors and officers who make problematic decisions. However, private companies of all sizes and non-profit organizations can also benefit from securing D&O coverage.

Coverage for Private Companies

Private companies can be vulnerable to claims because small business environments can make bad business decisions more visible; this attracts the attention of shareholders, regulators and others who may find fault and file claims. Private companies need D&O coverage because the cost of defending lawsuits sometimes exceeds the net worth of the companies themselves; judgments can be financially ruinous to a private company.

Coverage for Non-Profits

D&O liability insurance is applicable to non-profit organizations because of the vulnerability of their board members. When an individual becomes a board member of a non-profit organization, he or she takes on a degree of responsibility for the organizationthis is known as "duty of care"and is consequently exposed to possible claims for not running and managing the non-profit in a proper way.

D&O Details

As its name clearly indicates, Directors' and Officers' Liability Insurance always includes an organization's directors and officers. In some cases this means the organization's executive director along with a few key staff or board members. Coverage does vary from plan to plan, however, so it is important to go over a policy carefully with your insurance agent to ensure it is the right fit for your business or non-profit.

Finally, bear in mind that D&O insurance does not function as a free pass enabling directors or officers to engage in acts they know are unethical or otherwise inappropriate. Likewise, it does not give directors and officers permission to knowingly make bad decisions. In fact, deliberate illegal acts or any illegal gains and profits obtained by directors or officers are not covered under most D&O insurance policies. The true purpose of D&O coverage is to give directors and officers enough peace of mind to know that they can thoughtfully and carefully make informed decisions, and take strategic risks that they hope will benefit their organizationall without the threat of personal liability.

For more information about D&O insurance plans, talk to American Central Insurance today.