The What, Who And Why Of Directors And Officers Insurance

The directors and officers liability insurance, also known as the D & O insurance, safeguards the personal assets of the corporate officers and directors along with their spouses, provided vendors sue them, employes, competitors, customers, investors, or any other parties for committing any wrongful deed. The purpose of the D & O policy insurance is to protect the company and look after the legal charges and other related costs of the company.

In short, the D & O insurance can be called financial support against a standard indemnification that holds officers harmless for losses in the company due to their roles. Thus, in a way, it can be said that D & O policy insurance believes that the person in charge of a particular responsibility of a company cannot be held liable for any mishap that occurred in the company due to his role or respective position.

Why are directors and officers sued?

There can be various reasons for which directors and officers can be sued. Some of them include the following:

1. Misuse of company funds
2. Fraud
3. Misrepresentation of company assets
4. Violating fiduciary duty which can result in significant financial losses or bankruptcy
5. Lack of corporate governance
6. Failure to follow the laws of the workplace
7. Poaching customers of competitors
8. Theft of intellectual property

However, no illegal acts are considered under the D & O liability insurance.

Does Your business require d & O insurance?

Most people believe that the D & O liability insurance is a public company phenomenon. This is just a notion that people need to get rid of by now. If a business has a corporate board or an advisory committee, it is legible for having a D & O liability insurance. This includes non-profit organizations as well. It is not always true that one can be sued only in a more prominent organization. Smaller businesses with a few assets need more protection.

So, to make sure whether your business organization needs a D & O insurance, consider these two points:

1. First, ensure if you are interested in protecting the venture capital or funding from an investor.

2. Secondly, if your main goal is to grab the attention of experienced directors and retain them. In this case, the D & O insurance coverage will protect those unwilling to put their assets at risk.

How does D & O insurance work practically?

The practical working of a D & O insurance goes through the following steps:

1. First, a manager or employee of an organization allegedly fails to perform his duties and responsibilities as he is expected to do.

2. As a result, people (both external and internal) decide to sue the manager. And eventually, the manager is notified about the claim.

3. Now, the manager gets in touch with the risk management and legal department of the company.

4. In turn, the risk management and legal department inform their D & O insurance broker and provide the claim description.

5. The insurer pays for the defense cost if the claim is covered. On the other hand, the insurer pays the loss amount if the case is lost.

Conclusion

Therefore, if you work as a company manager and you do not feel safe, head to the authority and ask for D & O liability insurance.