Directors and Officers Insurance
Several months ago, I forwarded a Directors and Officers Liability Policy to a client. They read it from cover to cover and then called and asked me, “What does it cover?”. The policy has quite a list of exclusions on it, and it appeared, to the untrained eye, as though it did not cover anything. However, there are logical reasons the policy is written this way.
First, let’s discuss what the D&O policy is meant to do. The policy is designed to provide protection for the directors and officers in the event they are sued in conjunction with their duties in this role. The coverage can be expanded to include Employment Practices Liability Insurance and Fiduciary Liability.
Directors and officers can be sued for a variety of claims in the execution of their duties as a board, or as individuals. Failure to procure proper insurance would be one example. If the company suffers a property loss that is uninsured due to a breach of that duty by the board, then investors, or anyone else with an interest in the property, can sue.
The board could also be sued for negligent misrepresentation in the event that they enter into a contract that is later found to be fraudulent or inaccurate.
Investors can sue the board if they feel that they were misled in how their investments might be used.
They can be sued for false advertising by competitors who feel they have made false claims about the competitor, or overstated the efficacy of their own products.
Next, about those exclusions that were discussed. The exclusions on a D&O policy are there because there is an expectation that the coverage they are excluding would be insured on a different policy. For instance:
- Excluding injury to employees-Coverage is provided by Workers Compensation
- Excluding lawsuits for wrongful termination, harassment etc.-Coverage provided by Employment Practices Liability Insurance
- Excluding Bodily Injury and Property Damage-Coverage is provided by General Liability Policy.
These are just a few of the exclusions, but the reasons for having them in the policy quickly become obvious when seen in this light.
Directors & Officers Insurance should be considered for anyone serving on a For-Profit or Non-Profit Board. There are some actions in which the board can be involved that can also create a civil litigation which leaves the board members at risk for personal liability claims as well. The D&O coverage will give them peace of mind that their interests in the Board are covered.
For more information on D&O Insurance, please give us a call today at 877-352-2121, or e-mail us at service@clark-mortenson.com.
