Directors and Officers Insurance 101:
How to Protect Company Leadership
Unfortunately, lawsuits are a common part of life in business, and those who operate companies need to be prepared for them. People in top leadership positions are particularly vulnerable to litigation. So, any business or nonprofit organization with a board of directors or advisory committee should think about purchasing directors and officers liability insurance.
What is directors and officers liability insurance?
This type of coverage protects a company and its board members if they face lawsuits for alleged management issues, such as:
- Mistakes causing financial losses or bankruptcy
- Lack of corporate governance
- Unfair employee treatment
- Misuse of company funds
- Data breaches that compromise client information
- Customer poaching from competitors
A policy helps cover legal fees, settlements, and other costs associated with this litigation. Note, however, that this coverage won’t typically cover illegal acts or profits.
What types of directors and officers liability insurance exist?
Carriers usually offer three kinds of directors and officers liability coverage: side A, side B, and side C.
- Side A provides individual directors or officers protection for claims when a company can’t reimburse them for legal costs.
- Side B covers costs a company may incur by reimbursing directors and officers for financial losses.
- Side C protects both the company and its individual leaders if they are both mentioned in lawsuits.
Why is directors and officers insurance necessary for my company?
Of course, this insurance will help keep your business running in the face of litigation. But it also has other benefits because it makes your board positions look more attractive. More people will want executive-level positions in your company if they know they will have liability protection. Therefore, you’ll be able to attract a higher caliber of talent to run the business. Plus, venture capital and other private equity firms may require this type of policy before working with you.
If you have any further questions about directors and officers insurance or other types of commercial policies, give us a call. We can help you find the coverage your business needs.