If you are a director or officer of a company or non-profit organization, the essential work you do could be coupled with a myriad of potential liabilities. These include lawsuits, regulatory investigations, employment practices, injuries, and other mismanagement accusations. These can be levied on the organization and you personally as an officer or director. This is where Directors and Officers (D&O) insurance plays a critical role in protecting your personal finances.
What is D&O Insurance?
D&O insurance is a type of liability insurance policy that provides financial protection for an organization’s leaders. It’s important to note that homeowners or umbrella liability insurance does not provide adequate protection. As a separate insurance policy, D&O insurance typically covers:
- Wrongful acts: This broad term can encompass a wide range of actions, including breaches of fiduciary duty, negligence, errors and omissions, and even some criminal acts.
- Defense costs: D&O insurance can cover the legal fees associated with defending against lawsuits, including attorney fees, expert witness fees, and court costs.
- Settlements and judgments: The policy can provide financial protection to cover settlements and judgments awarded against directors and officers in lawsuits.
- Employment practices: Claims by employees or constituents, which is the most common type of claim on these policies, can also be protected against. However, review policies carefully as they may have certain exclusions from these types of claims.
Why is D&O Insurance Important?
- Protects personal assets: If a court awards the claimant, the director or officer would have to pay out of their own pocket if they do not have D&O insurance.
- Enhances corporate governance: D&O insurance encourages directors and officers to act in the best interests of the company without undue fear of personal liability.
- Guards against unknown threats: With the surge in Artificial Intelligence (AI) in addition to social media, information could be spread without knowledge, leading to a claim. Protection against cyber threats could also be part of a policy.
Choosing the Right Coverage:
Selecting the appropriate D&O insurance coverage requires careful consideration of several factors, including:
- Organization size and industry: The specific risks and potential liabilities vary significantly across different industries and company sizes as well as job titles.
- Risk tolerance: An individual or organization’s risk tolerance will determine the appropriate coverage limits and policy terms.
- Budget constraints: D&O insurance premiums can vary significantly, so it’s important to find a policy that fits within a budget.
In these days of increased litigation and larger settlements, D&O insurance is a vital component of risk management. This asset protection can help avoid personal setbacks and ensure the long-term success and stability of an organization. D&O insurance provides a layer of protection that homeowners or umbrella liability insurance doesn’t cover.
Asset protection is a key component of our true wealth management approach. If you serve on a board of a business or non-profit, make sure you have liability protection. For more information about our comprehensive financial services, we invite you to contact us.
