Most insurance coverages are tailored to cover the business itself or the general employees, but there is insurance created to protect specific positions. Directors and officers insurance (D&O insurance) protects certain appointed positions within the company. This could be as little as five positions to over a hundred, depending on the size of the business.
People covered under D&O insurance includes:
Corporate officers (presidents, vice presidents, secretary, treasurer, etc.)
What is the Purpose of Directors and Officers Insurance?
Unlike other business insurance policies, D&O insurance is used to primarily the directors and officers as opposed to the business itself. D&O insurance protects directors and officers who are personally sued due to their actions on the board of directors or during their employment. There are many reasons a director or officer may find themselves at the end of a personal lawsuit. Accusations may include:
Mismanagement and misrepresentation of company assets
Violating codes, violations and laws set by the company or board
Intellectual property theft
Stealing the competition’s customers
This insurance can also cover claims relating to misconduct. Businesses should consider adding EPLI, or employment practices liability, to their directors and officers insurance policy. EPLI covers claims made by employees regarding discrimination, sexual harassment, wrongful firing or hiring, failure to promote and more.
Employees, customers, investors and competitors may all file accusations against a specific director or officer if they believe that officer has cost them money. This only applies to directors and officers and does not cover other employees. It does not cover lawsuits between employees of the same position or status. This insurance also does not cover criminal or illegal acts committed by the director or officer.
Is Directors and Officers Insurance Worth It?
Many employees that are hired for officer positions or even directors positions will want to know that the company they are offered to work at has directors and officers insurance. Having this insurance can be the key to finding and maintaining essential talent among your officers and directors. It can also ensure that the business won’t be suddenly left without one of these important figures due to a lawsuit they cannot afford. Even smaller businesses should consider this insurance to protect its big players from lawsuits.
How Much is Directors and Officers Insurance?
The cost of directors and officers insurance depends on a variety of factors, including the industry, size of the company, revenue, claims and legal history and more. On average, businesses may pay between $3,000 and $10,000 a year (about $250 to $833.33 a month) for every $1 million of coverage.
Can Directors and Officers Buy Their Own Insurance?
It’s possible for directors and officers of a company to carry their own insurance. In fact, it’s often recommended. For example, if an officer leaves the company for another and is sued for his actions at the previous company, he may not be covered by that company’s insurance anymore. Companies and individuals can expand the coverage available under this liability insurance by adding an umbrella liability insurance policy. Umbrella liability insurance steps in when another liability policy reaches its limit. For example, if a director is sued for $2 million but the company only carries $1 million in D&O insurance, umbrella liability insurance will step in to cover the remaining $1 million.
All businesses should consider purchasing a D&O insurance policy. If you already have one, speak to your insurance agent about adding coverage or limits to ensure that all directors and officers of the company are protected.