Directors and Officers Liability Insurance

This policy typically covers the individual directors and officers and the organization that they are the director or officer for from wrongful actions committed on behalf of the directors or officers.

Directors and officers are in a fiduciary roll and thus they have legal obligations that they must adhere to in the role for the organization. They must exercise reasonable care that is customary and reasonable for the position that they are in. They have a loyalty to the company and to any stockholders to operate the business prudently that is in their care, custody and control.

Transparency is tantamount in this role in that full disclosure must be made for any and all transactions that involve each and every director and officer. Many times within the corporate bylaws there are provisions that dictate that the corporation will reimburse and/or indemnify directors and officers for any litigation that is brought against them as individuals. In order to fund that obligation most organizations purchase and provide directors and officers insurance for this liability exposure. Typically lawsuits involve the individual director and officer as well as the corporation. Thus, the policy needs to protect and indemnify both the individual director or officer and the corporation as a whole. With that in mind, some key provisions of the policy should be reviewed and considered before one purchases this type of policy.

Purchasing a policy that covers both the individual in the corporation well obviously cost more than just covering the individual but they will provide much broader and complete coverage than just covering the individual. The definitions of what is a wrongful act can also be an important area of concern when purchasing this type a professional policy. The broader the definition of wrongful actions the more coverage one is going to receive when a claim is presented. If this is the first time the organization has purchased directors and officers insurance having coverage for prior acts can be very important part of this policy. You may or may not want to consider having a consent provision that allows you as the professional consent to any payments for claims that are presented. There usually is a cost for that provision and you usually have to pay the portion that exceeds the amount on the table when the carrier could have settled the claim without going further in the litigation.

Typically directors' and officers' policies exclude coverage that should be purchased and provided in other policies. Usually claims dealing with property classes or general liability losses are not covered on this type of professional policy. Criminal acts are not covered in this policy. Nor are they covered in any other policy as that is against public policy countrywide. In larger corporations the directors and officers might serve on multiple boards across multiple industries. Have any specific endorsement to cover those ancillary exposures might help in attracting quality directors by providing that type of coverage for them. Having directors and officers insurance in place will help complete your insurance portfolio and risk management strategy for most corporations.

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