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What is Directors and Officers (D&O) Insurance?
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What Does Directors and Officers Insurance Cover?
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What Doesn’t Directors and Officers Insurance Cover?
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Who Needs Directors and Officers Insurance?
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How Much Does Directors and Officers Insurance Cost for Small Businesses?
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How Does Directors and Officers Insurance Work?
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Tips For Small Businesses When Purchasing Directors and Officers Insurance
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FAQs
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Get Directors and Officers Insurance Today
What is Directors and Officers (D&O) Insurance?
Directors and Officers insurance (D&O insurance) protects executives along with board members and officers, who make major decisions in a company. This specialized liability policy safeguards leaders against claims when others accuse them of mistakes or poor judgment in their roles.
Accusations stemming from mismanagement or negligence leads to high costs, potentially having major negative impacts on businesses. This is especially true for small businesses, nonprofits, and start-ups. Directors and Officers insurance combats these expensive claims by covering the cost of legal defense, settlements plus any damages.
What Does Directors and Officers Insurance Cover?
D&O insurance coverage for a broad range of occurrence such as:
- Breach of Fiduciary Duties: Failure to act in the best interests of shareholders, investors or the company in general.
- Mismanagement of Business Assets: Includes claims regarding the misuse or poor management of company funds.
- Errors in Reporting: Misleading or inaccurate financial reports
- Compliance Issues: If the member did not follow laws and/or regulations.
- Employee Lawsuits: If an employee sues over an issue involving directors or officers.
- Misinformation or Misrepresentation: Providing inaccurate or misleading information affecting investors or stakeholders.
- Claims by Creditors: If a business is unable to pay its debts.
What Doesn’t Directors and Officers Insurance Cover?
While D&O insurance covers a broad number of claims, policies generally exclude the following:
- Criminal Activity
- Fraud
- Acts of Personal Gain or Profit
- Property Damage or Personal Injury (usually covered by commercial property or general liability insurance)
- Claims Filed Prior to the Policy’s Start Date
Who Needs Directors and Officers Insurance?
D&O insurance isn’t limited to big businesses. Nonprofits, startups, and small enterprises can all benefit largely from this coverage. Consider purchasing D&O insurance if:
- You have an executive leadership team, a board of directors or an advisory committee.
- You draw in investors who demand liability protection in exchange for their capital.
- Your company is listed on a public exchange or intends to do so.
- You regularly look for outside funding or participate in fundraising tactics.
D&O insurance is commonly purchased by businesses in the following industries:
- Technology Startups
- Non-profits Organizations
- Financial Services
- Manufacturing Businesses
- Healthcare Companies
It’s easy to make the mistake of thinking that huge corporations are the only ones that need D&O insurance, but that’s simply not true. The fact of the matter is that if company assets or affairs are mismanaged, small businesses suffer more than anyone else without the proper coverage. This is due to the fact that small businesses tend to have less capital on hand to fight accusations out-of-pocket.
How Much Does Directors and Officers Insurance Cost for Small Businesses?
The average cost of D&O insurance for small businesses is about $138 per month, or $1,653 per year. With that being said, the cost of your policy may vary from the average amount based on the following factors:
- Employee Size: The more employees you have, the more likely it is that someone might sue the management team.
- Revenue: Higher revenues tend to increase the cost of premiums.
- Industry: Industries with higher risk attached to them like finance or technology may face higher premiums.
- Ownership Structure: Insurance providers usually consider publicly traded companies as high risk compared to privately owned companies.
- Financial Security: Companies that are financially unstable are more likely to pay more in premiums
- Prior Claims: Whether or not your company has already been sued factors into the cost.
- Limits and Deductibles: The amount of coverage and the deductibles you choose will affect the overall cost.
To get a more accurate estimation of how much D&O insurance will cost for you, just click the button below!
How Does Directors and Officers Insurance Work?
Claims Process
Here is the typical process of a D&O insurance policy in action:
- Claim Filing: The company, or the accused person submits a claim to their insurance provider.
- Investigation Period: An insurance adjuster investigates the extent and legitimacy of the claim.
- Defense Costs: The insurer generally covers the cost of defending the sued executive or business.
- Judgment/Settlement: The insurer pays for the costs of the settlement or damages, up to the policy limit, as long as the claim is valid.
Policy Structure
D&O insurance policies are split into three parts—Side A, B and C. Each side offers different protections:
- Side A: Covers the sued individuals involved such as directors, officers, and executives if the company cannot or will not pay for their legal costs.
- Side B: Commonly referred to as “company reimbursement” coverage, this portion reimburses the company for legal costs, judgments and settlements,if they’ve already covered the executive’s expenses.
- Side C: Protects the company as a whole if it is named in a lawsuit.
D&O policies are usually offered in two forms—a policy containing all 3 parts called an ABC combination policy, or a standalone A policy.
Tips For Small Businesses When Purchasing Directors and Officers Insurance
When purchasing a D&O insurance policy, here are some tips to keep in mind to ensure that you’re sufficiently protected:
- Policy Limits: It’s crucial to select a policy limit that accurately reflects your company’s risk factors. Typical D&O policies options offer between $1 million and $5 million in protection.
- Depth of Coverage: Policies including Side A, B and C coverage ensures the most comprehensive protection, covering you and your business from all angles.
- Exclusions: It’s crucial that you read through your policy’s list of exclusions to ensure you know what’s covered and what isn’t
FAQs
Does a business owners’ policy (BOP) include D&O insurance?
No, business owners’ policies (BOP) typically combine general liability, commercial property and business interruption insurance. D&O insurance is a standalone policy that must be purchased separately in order to gain protection against executive-related claims.
What’s the difference between D&O insurance and general liability?
General liability insurance works by protecting businesses against claims relating to personal injury, property damage, and reputational damage.
Directors and Officers insurance protects executives and decision-makers when they are sued by other company members over decisions resulting in a negative impact.
Why do nonprofits need directors and officers insurance?
Without D&O insurance, board members and executives could be personally held liable if sued over mismanagement, financial decisions or other employment practices. D&O coverage helps these company members by covering the costs of settlements, damages and other legal fees, so they can operate confidently without the fear of financial loss.
When can directors be personally liable?
Directors can be personally held liable when they don’t uphold their fiduciary duties. Examples include intentionally acting in bad faith of the company as a whole, engaging in fraudulent activities, or making negligent decisions causing harm to the company. Financial mismanagement, employee disputes, and other workplace violations all could cause directors to be held personally liable.
Get Directors and Officers Insurance with EZ.Insure
To ensure company success for years to come, it’s crucial to protect the leaders of your company against costly lawsuits. While court cases can take months or even years to resolve, getting a D&O insurance plan is quick and simple with the help of EZ.Insure!
Our user-friendly platform provides free, instant access to quotes, lets you compare competing plans side-by-side and if you need help along the way, we have licensed insurance agents on call 24/7.
Don’t wait for the unexpected to become a reality, instead get covered today. Enter your ZIP code below or call at (855)-694-0047 to receive your no-obligation quote!